Apart from outlining several risks, the RBI is presently examining the legal and regulatory framework of virtual currencies like Bitcoin, Litecoin, BBQcoin and Dogecoin
The Reserve Bank of India (RBI) has cautioned users, holders and traders of virtual currencies (VC), including Bitcoin. In a release, the RBI stated that Bitcoin, and other VC, are exposed to the potential financial, operational, legal, customer protection and security related risks.
The RBI said, “the creation, trading or usage of VC including Bitcoin, as a medium for payment are not authorised by any central bank or monetary authority. No regulatory approvals, registration or authorisation is stated to have been obtained by the entities concerned for carrying on such activities.”
Bitcoin was created to solve the mathematical solution to double-counting but it grew into a separate currency and system altogether and its value has skyrocketed as more and more people, investors and enthusiasts jump into the bandwagon and started transacting in the virtual currency. Earlier Moneylife had written, in detail, a primer on Bitcoin.
The reason people took to Bitcoin, apart from its meteoric rise in value is because there is no regulator to control the currency unlike fiat currencies which get depreciated. However, recently, the Bitcoin has come under attack after hackers managed to penetrate into some of the Bitcoin e-Wallet sites, which caused them to shut down and stop offering Bitcoins for sale.
RBI further said that VC including Bitcoin may pose several other risks to users, including the following:
RBI has also been looking at the developments relating to certain electronic records claimed to be ‘decentralised digital currency’ or ‘virtual currency’ such as, Bitcoin, Litecoin, BBQcoin, Dogecoin, etc, with their usage or trading in the country and the various media reports in this regard.
The RBI has also stated that, it is presently examining the legal and regulatory framework of the country, including Foreign Exchange and Payment Systems laws and regulations.
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CAG pulls up the taxmen for being selective and granting exemption to two Tata trusts
It is well known that innumerable cases of tax exemptions and deductions depend on the whims or generosity of the particular assessing officer. Most of this went unnoticed in the past, when the Comptroller & Auditor General (CAG) was largely seen as a bureaucratic bean counter, producing boring reports. All that has changed after Vinod Rai’s regime as CAG. India’s highest government auditing authority remains aggressive and its reports now attract plenty of media attention. CAG has recently been in the news for picking holes in the tax treatment of several of India’s holy cows—trusts, religious charities and cricket associations.
It has pulled up the income-tax (I-T) department for granting ‘irregular exemptions’ of over Rs1,000 crore to two Tata trusts. According to the CAG report tabled in parliament, Jamshetji Tata Trust and Navajbai Ratan Tata Trust invested Rs3,139 crore in ‘prohibited modes’ leading to accumulation of capital gains, which involved tax effect of Rs1,066.95 crore.
It has also identified 240 cases leading to irregular tax exemptions of Rs248.39 crore mainly because of the allowance or disallowance of depreciation. Among these is the high-profile Mata Amritanandamayi Math where a depreciation claim of Rs138 crore was considered ‘not in order’.
It has also questioned the I-T department’s generosity in granting exemptions to four cricket associations which deprived the exchequer of Rs37 crore tax on the income raked in through sale of television rights. It has also flagged 30 cases where voluntary donations to trusts were treated as corpus even when there was no specific direction to this effect.
Meanwhile, a whole new chapter of collusive deals may open up with the many ‘electoral trusts’ that are being set up by large business houses for political funding. Under the new framework, these ‘Electoral Trusts’ are not-for-profit entities and will enjoy tax benefits. The question is: Will they also continue to extract corporate benefits from the political parties they fund? Then, there is the issue of political funding by companies, such as Vedanta Plc, through their Indian subsidiaries, which is barred under Indian law but has gone unchecked. A public interest litigation seeking a court-monitored investigation into this funding has been filed by Association for Democratic Reforms (ADR) and retired civil servant EAS Sarma. This may lead to another round of clean-up of our political system.
Mr Sarma has also drawn attention to the fact that the new Companies Act allows private companies to spend on political donations as much as 3.5 times the sum they are mandated to spend on corporate social responsibility schemes. This is clearly in preparation for the 2014 general elections. Political observers say that big business is likely to play safe and spread their donations among multiple parties, given the uncertainly about the outcome of these elections.
After the surprise return of the Congress-led UPA coalition in 2009, nobody is willing to write off even the Congress. However, Indian businesses—cutting across religious and ideological spectrum or past affiliations—are rooting for Narendra Modi as the prime minister.
How long will banks get away with funnelling public money into hands of dubious industrialists through CDRs?
An Rs8,000-crore CDR package to a politically powerful industrialist on the eve of general elections calls into question RBI’s exhortations to banks to stop ever-greening of bad loans. That it happened even after the AIBEA’s unprecedented action of naming bad loan accounts and demanding that banks ‘stop the loot’ of public funds, only underlines that senior public sector bankers either do not recognise the change in public sentiment or believe that they cannot be touched. How long will banks get away with funnelling public money into the hands of unscrupulous industrialists?
EAS Sarma, former Union government secretary, in a harshly worded letter to the finance ministry, says, “CDR has become a euphemism for regularising banking fraud.” He also says that, since most CDR packages involve huge write-offs by public sector banks, often under pressure from politicians, there must be a CBI or CVC investigation into each case. Mr Sarma cites the example of how a syndicated loan of Rs4,500 crore to a power project was entirely credited to the account of an overseas company and ‘round-tripped’ later as foreign direct investment through the Foreign Investment Promotion Board (FIPB). This could never have happened without the knowledge and active connivance of the consortium of bankers who made the loan.
Now consider LANCO, a construction, power, and real estate company founded by L Rajagopal, a member of parliament with access to the Congress high command. While it thrived in the 1990s mainly because of its ability to bag and restructure government contracts, the company has ratcheted up losses and applied for debt restructuring in July 2013. Despite opposition and reluctance by several banks in the 27-member consortium, the group’s CDR was cleared in mid-December 2013 with the lenders not only granting it a two-year moratorium on interest payments, but also lowering of interest rate, fresh loans of Rs2,500 crore and restructuring of its bank guarantees and letters of credit. In other words, the group is fully funded and geared during election time. Against this backdrop, RBI’s earnestness in getting banks to take serious action against defaulters sounds naïve.