About Cryptos, OECD gets less cryptic

The Crypto-Asset Reporting Framework (CARF), released on Monday, plugs an information gap in the OECD's Common Reporting Standard (CRS), which has improved cross-border tax transparency in over 100 countries that have signed up for it. The framework addresses the issues of cryptocurrency transactions bypassing traditional financial intermediaries like banks that are required to report for improved tax compliance, and administrators not having a comprehensive sense of the volume of transactions or holdings. In turn, cryptocurrencies have spawned their own set of intermediaries like exchanges and wallets that largely remain unregulated. CARF sets out rules on crypto-assets, intermediaries and transactions that will be subject to reporting, as well as procedures to identify users. OECD also intends to subsequently amend CRS to cover digital financial products.

By plugging information arbitrage across countries, the cryptocurrency guidelines could replicate the success of reporting financial transactions that led to countries last year exchanging information on assets involving ₹11 trillion. As the market capitalisation of cryptos increases, automatic reporting of distributed ledger transactions could deliver an avalanche of information that tax authorities in individual countries will need to build capacity to mine. This could be challenging. But India has advantages both in its strict tax compliance regime and data-crunching capabilities. Besides, New Delhi has been at the forefront of demands for global monitoring of digital assets.

The Reserve Bank of India (RBI) is readying pilots ahead of the launch of its own digital currency. The scope for tax evasion could diminish considerably if fiat digital currencies, which provide the authorities greater visibility on transactions and holdings, become the principal modes of conducting virtual commerce. Both forms of cryptocurrencies will coexist for now. Tax transparency will be served by improved international cooperation and increased acceptance of official digital currencies.