The idea that a unique blockchain designator called a Non-Fungible Token (NFT) assigns uniqueness and, therefore, value to a work of art has been around since the late 1980s. However, it was only in 2014, with a 70 million dollar sale of a painting with this NFT, that the idea achieved its current popularity.
The Government has, since September 2021, been working on a cryptocurrency draft bill, part of a series of legislation to help define what cryptocurrencies and NFTs are and how they can be taxed and brought into the mainstream of the economy. For this purpose, the Government has sought expert opinion on several matters, including apps like this platform for a better understanding.
What’s the Impact?
From the Government’s point of view, bitcoin and its role in unique designations towards art through NFTs can be extremely valuable from regulation and taxation, not to mention security against plagiaristic loss of value.
So far, the Government’s list of taxable assets has included gold, physical assets, stocks, and bonds. However, with changing legislation made to accept NFTs and cryptocurrencies, the Government could classify works of art containing NFTs and whose sale was heretofore happening only on the dark web or through institutional gatekeepers as taxable assets, and thus derive revenue income from these resources directly. Cryptocurrencies would be treated as an asset or a commodity in the future. This would include taxation and on a per-use basis – payment, investment, or utility.
The Government’s focus on the end-use of the cryptocurrency asset is essential. Regardless of the technology used, if the commodity or product participated in any mode of economic exchange, it would be part of the market and therefore liable to all responsibilities towards the market, such as taxation. The bill is also slated to detail the nature and extent of tax that cryptocurrency assets would be subjected to.
How to deal with the situation?
NFTs have been a massive success. More and more investors are joining the NFT bandwagon. As a result, there exists a great deal of irregularity regarding the regulation and taxation of cryptocurrency assets – both in terms of income tax and goods and services tax. This lack of clarity regarding protocol is a direct outcome of the lack of clarity on whether cryptocurrency qualifies as either currency, or commodity, or equity.
For example, NFTs can be very valuable for creating digital imprints of specimens from museums, art pieces, sculptures, figurines, etc. Also, since an NFT would imply unparalleled uniqueness and authenticity, it would mean that the Government could directly sell these NFT-enabled images/videos to enthusiasts/fans who are willing to invest.
The Government could also create tax reliefs for these investments to draw further interest from the uber-wealthy. Also, ownership issues would be mitigated through the NFT, as the original piece would still be owned by the Government, with unique NFTs being issued into circulation.
In municipal finance, NFTs can create interest in investors. Municipalities are not perhaps possessed of the best credit ratings; however, their possessions and assets can be monetized through the NFT-token gateway. This can bring revenue to the municipal level and help strengthen the federal structure of governance.
The Government is seriously thinking about profiting from the reliability of blockchain technology is evident when one considers that NITI Aayog recently released a book on the same, titled ‘Blockchain, The India Strategy.’ In the book, several such options and ideas for monetizing assets that would otherwise be non-performing are detailed, from chit funds to land records.