Digital rupee, crypto tax, 5G: Decoding Budget’s impact on technology sector

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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.


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