The growing craze for bitcoin, a crypto currency that has rocketed to dreadful highs, has appeared under the government’s lens. Bitcoin can be a simple way to evade tax or snare unsuspecting little investors in ponzi schemes. The government has started a crackdown on illegal uses of this unregulated virtual currency.
Widening its probe into bitcoin investments and trade, the Income Tax (IT) department is set to problem notices to 4 to 5 lakh high networth individuals (HNI) across the country who were trading on the exchanges of this uncontrolled virtual currency, the PTI reported.
The move appears after the IT department conducted survey operations last week at major bitcoin exchanges across the country on mistrust of alleged tax evasion. These operations were undertaken for collecting evidence for establishing the identity of investors and traders, the transaction undertaken by them, identification of counter-parties and related bank accounts.
Earlier this month, there was a spurt in the value of bitcoin. It rose from under $10,000 at begin of the year to close to $20,000, before a sharp 20 per cent plunge within hours.
In addition to financial risks—the value of bitcoins has seen big falls within hours—the regulators are worried about their use for illicit and illegal activities, subjecting the customers to an unintentional breach of laws against money laundering and terror finance.
Concerns also arise from some unscrupulous entities indulging in illicit money-pooling activities—commonly known as ponzi schemes—with the assurance of huge returns from investment in bitcoins and other variation, which they claim are minted through blockchain, a distributed ledger technology that was made to mint bitcoins and comprises of acutely complex algorithms with several thousand nodes for each chain.
There is a suspicion that some so-called crypto currencies and bitcoin investments may really have nothing to do with any blockchain-developed virtual currency and are just new ways arranged by scamsters to ride the wave and what they may be offering could be ‘e-ponzi’ schemes.
The financial regulators are worried that a complete lack of regulatory government for such crypto currencies may give rise to ‘e-ponzi’ schemes.
The financial sector watchdogs, including RBI and Sebi, as also different government agencies, will soon get into a huddle to prepare a framework to safeguard the gullible investors and to clamp down on the fraudsters who may try to manipulate the regulatory gaps, PTI reported, quoting a senior official.
There are quite a few proposals on the table and those include applying to crypto currencies the existing regulations aimed at checking the spread of ponzi schemes or illicit money-pooling activities, money laundering and black money generation and currency, another official said.
The jury is still out on whether such virtual currencies should be permitted as legal payment tender or investments, though there are also suggestions from some quarters for permitting them with necessary checks and balances.