Digital rupee, crypto tax, 5G: Decoding Budget’s impact on technology sector
Finance minister Nirmala Sitharaman’s budget proposals have confirmed a digital version of the rupee as a currency, a taxation structure for investments in virtual assets such as crypto coins and confirmation of the 5G spectrum auction this year.
The Budget 2022 announced by the government of India has touched upon different technology verticals and will have a bearing on how you interact with technology, access services online and pay taxes on virtual assets. There is now confirmation about the launch of a digital version of the rupee as a currency, a taxation structure for investments in virtual assets such as crypto coins, confirmation of the 5G spectrum auction this year and boost for electronics manufacturing in the country.
There has been a positive reaction from the industry, with the expectation that the proposals will lead to a boost for local manufacturing as well as job creation. “The initiatives aimed at driving innovation and manufacturing are a great impetus towards aiding the boom of the electronics and telecom industry of the country - helping promote economic growth, create jobs,” says a Xiaomi India spokesperson, in a statement shared with HT.
“We are confident that the exemption of duty on parts of select electronic items will further boost the domestic manufacturing of electronics goods under the PLI scheme,” says Alok Dubey, chief financial officer, Acer India.
Digital Rupee rolls out in 2022
The announcement of the digital rupee confirms that India will now join the list of countries that are experimenting with digital currencies. The Reserve Bank of India (RBI) will introduce a new digital rupee in the upcoming financial year. The central bank digital currency (CBDC) will be a legal payment tender, and on par with the rupee as we have known it in the paper version all along.
“The Central Bank Digital Money (CBDC) will help to enhance the digital economy by making currency management more efficient and less expensive,” says Kavitha Subramanian, co-founder, Upstox. The finance minister, in the budget speech, talked about the digital currency being more efficient and cheaper to manage.
How this will be taxed, transacted and any specific regulations are expected to be announced by RBI, in the coming months. “Introduction of Central Bank Digital Currency (CBDC), leveraging blockchain technology will influence the digital transactions and hence its implementation process will be something to pay attention to,” says Madhusudan E, co-founder and CEO at KreditBee.
Last year, China became the first major economy to issue CBDC as part of a large-scale test. As of June, e-CNY (Digital Yuan) wallets in China clocked 24 million users. Transactions of 62 billion Yuan had been done as of November 2021, according to Mu Changchun, head of the PBOC’s Digital Currency Institute. Countries including UK and Japan have also started consultation on introducing CBDCs.
5G is coming this year
There is confirmation that 5G spectrum auctions will be done this year, which will allow telecom companies including Bharti Airtel, Vi and Reliance Jio to roll out commercial 5G networks soon. The budget speech confirmed that the spectrum auction will be conducted in 2022 to facilitate rollout of 5G mobile services within 2022-23 by private telecom providers.
“We are glad to see the focus on the enhancement of digital connectivity and the announcement for the required spectrum auction in 2022 for the rollout of 5G mobile services. The proposal for taking progressive decisions in encouraging affordable broadband and mobile services through facilitating PLI scheme for 5G equipment, laying optical fiber cables through PPP model under BharatNet project are welcome steps,” says Lt. Gen (retd) SP Kochhar, DG COAI, or the Cellular Operators Association of India.
A scheme for design-led manufacturing will also be launched, to help build an ecosystem for 5G services. This will be part of the production linked incentive (PLI) scheme. “Design-led initiatives for 5G under the PLI scheme and 5% of USOF for R&D purposes will strengthen the ‘Make in India’ initiative, and contribute to making India a global manufacturing hub,” says Nitin Bansal, managing director, India & Head-Networks - Southeast Asia, Oceania, and India at Ericsson.
Tax on crypto coins
Taxation on cryptocurrencies is something that was hinted at in the past as well, and the Budget 2022 has confirmed the intentions. The new cryptocurrency tax will include all private cryptocurrencies such as Bitcoin and Ethereum, as well as stable coins which are pegged to the value of fiat currencies (such as Tether is linked to the US$).
Any transaction in digital virtual assets will have a flat taxation slab of 30% -- this will be applicable for short term and long-term virtual asset holdings. “The regulatory guidance on tax from the government furthers the mainstreaming excitement of this emerging asset class with over $6bn worth of investments in India,” says Ashish Singhal, founder and CEO, CoinSwitch.
There was an apprehension that the government might ban cryptocurrencies outright, but the taxation plans have confirmed that this isn’t the case. “With the announcement of taxes on cryptocurrencies, the Union Budget 2022 has indicated that regulation rather than a blanket ban will be the way forward for cryptocurrencies and other virtual digital assets,” says Pritam Baruah, Dean- School of Law, BML Munjal University.
“The move to tax virtual digital assets gives the entire ecosystem including investors and exchanges transparency on the road ahead. 30% tax on income from virtual digital assets, while high, is a positive step as it legitimizes crypto,” says Avinash Shekhar, CEO of ZebPay.
According to the Finance Bill, a virtual digital asset is any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme, and can be transferred, stored or traded electronically.
“It is disappointing to see that the government has decided that the income from the transfer of digital assets will be taxed at 30%, which seems to be too high,” Om Malviya, president, Tezos India, a blockchain company pointed out.
“NFTs, cryptocurrencies and digital assets space is already booming and has immense potential for the economy in the near future,” he adds.
The budget also proposes to tax the recipient of any gifts of virtual assets, such as crypto coins. Losses in these investments cannot be set off against other income. “Taxation of virtual digital assets is an indirect approval for crypto currencies, although it comes with a caveat i.e. without setoff of loss with any other income,” says Avinash Gupta, managing director and CEO – India, Dun & Bradstreet.
Boost to tech manufacturing
The Budget 2022 gives a boost to electronics manufacturing in the country. The finance minister says that custom duty rates are being calibrated to provide a graded rate structure to facilitate domestic manufacturing – there is specific focus on wearable devices, hearable devices and electronic smart meters.
There will also be duty concessions on parts used in the manufacture of mobile phone chargers and camera lens as well. “Concessions towards the domestic manufacturing of high growth electronic items as well as on parts of phone chargers, transformers, wearables will provide the necessary boost required for the upgradation of the sector,” says Mandeep Manocha, co-founder and CEO, Cashify.
This should allow companies in India to manufacture locally, which should provide fresh impetus to the government’s ‘Make In India’ initiative. Smartphone manufacturing should also give phone makers some room in terms of pricing. India is one of the largest smartphone markets in the world. In the wearables space, Indian brands such as Boat and Noise, to name a few, are setting robust sales numbers for smartwatches, fitness bands and wireless earbuds.