India’s finance minister said the country will launch a digital version of the rupee, the official currency, this year.
In her annual budget letter, Nirmala Sitharaman also outlined plans to levy a 30 percent tax on income from digital assets.
This will put profits from trading or transferring cryptocurrencies and non-fungible tokens at the highest tax range in the country.
India is the latest major economy to announce an official virtual currency, while China is testing a digital version of its official currency, the yuan.
“The introduction of a central bank digital currency will give a strong boost to the digital economy,” Sitharaman said Tuesday.
“The digital currency will also lead to a more efficient and less costly currency management system,” she added.
It also said that the volume and frequency of digital asset transactions “made it necessary to provide a specific tax regime”, in which profits from transactions are taxed.
The tax will also apply to gifts of digital assets, where the recipients are responsible for paying the tax. Taxes for all other transactions will be deducted from the source.
The announcement came as Sitharaman revealed the annual budget of India’s federal government.
It included ramping up spending on infrastructure and expanded credit guarantees for struggling small businesses.
Asia’s third-largest economy has been hit hard by the epidemic, with massive job losses and rising inflation.
The announcement that India’s central bank will introduce a digital currency comes against the backdrop of the country’s de-circulation policy.
In 2016, Prime Minister Narendra Modi gave just four hours’ notice of withdrawing 500 rupees (£4.94) and 1,000 rupees of banknotes from the financial system.
Meanwhile, China was experimenting with the digital yuan ahead of the Winter Olympics this month and banned cryptocurrency trading.
In Britain, the central bank and the Treasury are exploring a potential central bank digital currency.
Cryptocurrency traders have welcomed India’s plan to introduce the digital rupee.
Sumit Gupta, co-founder and CEO of the India-based cryptocurrency exchange, told the BBC that the initiative “gave legitimacy to virtual digital assets”.
Gupta also said that he believes that taxing digital assets would be beneficial for the market, but that he thinks the rate is too high.
“The 30 percent tax rate is on par with the rate charged on winnings from speculative activities, such as lotteries, gambling and other gaming activities. This 30 percent proposal may act as a disincentive to greater adoption,” he said.
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