Reuters reports that Bitcoin transactions are being investigated for potential tax disclosure or laundering.
While regulators have not deemed virtual currencies illegal, India’s law enforcement agency, the Enforcement Directorate, raided the offices of a few companies that operate bitcoin trading websites. While this might slow the adoption of bitcoins as a method of exchange, some see it as a necessary step in the currency’s evolution.
“This is not an attack on bitcoins, but one of its outcomes. They (regulators) want to prevent money laundering and if you want to stop someone from using it in an illegal fashion, they seem to be going down the right path,” said Benson Samuel, a bitcoin developer who runs coinsecure.in. He added that RBI’s advisory may slow down the adoption of virtual currencies in India.
Indian Revenue Services officials visited CoinMonk Ventures, which runs bitcoin buying and selling website unocoin.com, in December, seeking information on the digital currency, said its chief executive, Sathvik Vishwanathan.
“They (IRS officials) have asked me to submit a paper describing how bitcoin works, how transaction works, how to mine bitcoins and what happens technically in bitcoin mining,” Vishwanathan said.
This makes total sense. The main power of bitcoin is not that it provides anonymity. That would only encourage money laundering and tax evasion. It is also not the fact that you could use it as a store of wealth, because acquiring or selling anything that is a store of wealth will attract some kind of tax. Even buying gold involves sales taxes.
Indian authorities would do well to classify bitcoin at the same level as gold. It is after all a currency whose main power is that of an easy and fast transaction. The drawback is that a bitcoin is easily stolen; however, if regulators worldwide work together, any cheater can be quickly identified and the bitcoin returned. At the very least, RBI should encourage this within India.
Payment system rules discourage the use of a system like Bitcoin on the face of it, but think of it as a “closed payment system” – like a shopper’s stop gift certificate, except you can use it it any shop that accepts bitcoin. The technology doesn’t allow fraudulent creation of more money, which is really the biggest concern of a closed-payment-system. So if anyone using bitcoin is part of a closed chain, and there is KYC (you know who has bought/sold), then the currency is actually a huge boon for easing transactions. Will the RBI listen?