Explained: Why Centre wants cryptocurrency holdings mandatorily disclosed in RoC filings
, Pranav Mukul
, Edited by Explained Desk | New Delhi |
March 26, 2021 12:03:45 pm
The corporate affairs ministry has announced companies will have to disclose any holding or dealings in cryptocurrencies or virtual currencies in their financial statements filed with the Registrar of Companies.
We examine what this measure indicates, given the government’s earlier stance on banning private cryptocurrencies such as Bitcoin and Ethereum and the RBI’s ban on these currencies that was subsequently overturned by the apex court.
What is the new regulation?
All companies will now have to disclose in their statutory financial filings to the RoC any profit or loss on transactions involving cryptocurrency, the amount of cryptocurrency held on the reporting date, and any deposits or advances received from anyone for the purpose of investing in cryptocurrencies or virtual currencies.
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What does this inclusion indicate?
Some experts have said these disclosure requirements indicated the government is open to regulating cryptocurrencies instead of banning them. “This is a major step towards regulating the crypto assets in India and will bring in a lot of transparency in reporting/filing of crypto investments… We are eagerly waiting for positive regulatory guidelines from the Finance Ministry and RBI for more clarity around crypto regulation in India,” said Shivam Thakral, CEO of BuyUCoin adding that the government should note that Indians had already invested around $1.5 billion into crypto assets.
Others, however, noted that the additional disclosure does not necessarily indicate that the government has decided to regulate cryptocurrencies instead of banning them.
The government’s new bill – Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 — aims to prohibit all private cryptocurrencies while setting the stage to roll out the legal framework for an “official digital currency”. However, Union Finance Minister Nirmala Sitharaman has said the Centre will take a calibrated approach to cryptocurrencies and will not close the window on experimentation with cryptocurrencies.
Why ask for disclosures if the government is planning to move an effective ban on cryptocurrencies?
Experts have noted the corporate affairs ministry may just be seeking disclosures from companies to get a record of the usage of cryptocurrencies after reports that some startups were paying some employees part of their salaries in cryptocurrencies.
“These reports may have prompted the government to ask for disclosures, so now if companies do not disclose their dealings then they may have to face other consequences for misrepresentation in official filings,” said Neeraj Dubey, partner at law firm Singh and Associates.
Notably, the government has also amended disclosure requirements to require companies to require disclosures of the relationships that companies have with any companies that have been struck off by the RoC, and any proceedings against companies for Benami transactions. The regulations also require that companies disclose if they have ever been declared a wilful defaulter by a bank or financial institution as a part of an effort to gather more information on the conduct of companies.