Regulating Virtual Digital Asset

Regulating Virtual Digital Asset

• Ministry of Finance extends Anti-Money Laundering provisions to Virtual Digital Assets (VDA) businesses and service providers.
• Scope of Prevention of Money Laundering Act (PMLA) Act of 2002 expanded to include activities related to VDA and cryptocurrency.
• The Ministry of Finance recently broadened anti-money laundering regulations to include Virtual Digital Assets (VDA) enterprises and service providers.

How will VDAs be covered under PMLA 2002?

• Extended activities include exchange between VDA and Fiat currencies, exchange between different VDAs, transfer of VDAs, safekeeping or administration of VDAs, and provision of financial services related to VDAs
• VDA businesses required to register as reporting entities with Financial Intelligence Unit-India (FIU-IND)
• Compliance with global guidelines put forward by the International Monetary Fund (IMF) and the Financial Action Task Force (FATF)

Significance of the move and concerns

• Significance includes standardization of norms, increased transparency, and assurance in the VDA ecosystem
• Concerns include lack of central regulator and potential tax revenue loss due to users switching to foreign exchanges

What are Virtual Digital Assets?

• Definition introduced in Union Budget for 2022-23
• Virtual Digital Assets defined as any information or code or number or token generated through cryptographic means with the promise or representation of inherent value
• Examples include cryptocurrencies, DeFi, and NFTs
• Income tax and tax deducted at source introduced in April and July 2022, respectively

Way forward

• Reconsideration of high tax rates on VDAs in comparison to other asset classes
• Alignment of VDA taxes with other asset classes to reduce tax arbitrage and retain capital, consumers, investments, and talent within the country

Practice Questions for Prelims

Consider the following assertions about Virtual Digital Assets.
1. It refers to any information, code, number, or token created via cryptography or other procedures. 
2. A 30% tax on revenue from virtual digital assets was planned in Budget 2022-23.
3. All virtual digital assets (VDAs) were recently brought under the purview of the 2002 Prevention of Money Laundering Act (PMLA).

Which of the following statement(s) is/are correct?
a) 1 only
b) 1 and 2 only
c) 2 and 3 only
d) 1, 2 and 3

Ans. d

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