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Even as the market for NFTs (non-fungible tokens) is gaining wider acceptance in the wake of celebrities from the world of films and sports showing interest in them, the government is re-examining the proposal to tax the blockchain ecosystem, according to reports. Cryptocurrencies and digital tokens like NFTs form a part of the blockchain ecosystem.
Law experts at the same time pointed out that digital tokens are derivatives of assets like a piece of art but currently trading is allowed only in financial derivative products.
Kamal Haasan is the latest actor to have launched his NFT collection, adding to the buzz. A report in The Economic Times that quoted founders of some NFT projects and said not all NFT assets are credible as many are “opportunistic and lack key features such as uniqueness, rarity, and long-term credibility”.
Anshum Bhambri, co-founder of Faze Technologies, is quoted as saying that many players have joined the race for quick bucks. Faze Technologies is in partnership with the International Cricket Council (ICC) to create exclusive digital collectibles (using NFTs) for cricket, says the newspaper report.
The Economic Times Vishakha Singh, vice-president and co-founder of WazirX NFT Marketplace, quoted as saying that for the entertainment industry the NFT fad is a seen public relations exercise, but it does create awareness.
NFT can be seen as a derivative of asset like a piece of art, Sunil Jain, partner at AnantLaw, quoted as saying in the report. At present, trading is allowed only in financial derivatives at recognises stock exchanges under a regulatory framework, Jain said, adding that an NFT dealing with a piece of art does not come under any regulations or policy prescription
Taxes
The government wants a framework to tax the use of blockchain for commercial purposes to be implemented before the legislation on cryptocurrencies is brought in, the Business Standard reported.
The move comes amid investments in cryptocurrencies surging. The report said the investment, according to industry estimates, is about Rs 6 trillion.
Legislation to create a “facilitative framework” for launching an official digital currency is in the works. The Reserve Bank of India (RBI) will introduce official digital currency.
The Business Standard quoted an official as saying that the use of virtual currencies and NFTs is prevalent and is leading to a loss of revenue for the government.
Taxes will not mean trading in NFTs and such assets will be legitimised as it is only a step to tax such transactions, the official said.
This is the second time the government is considering imposing a tax on cryptocurrencies. Earlier in 2018, a similar plan was considered. The official said the tax framework for blockchain will remain even if the government starts regulating them or banning such assets because blockchain can be used in many areas.