Background –
Bitcoin now has a total market capitalisation of about $18 billion — far more than other so-called “crypto-currencies” although a fraction of the value of other globally traded commodities. And it nears record high as it becomes ‘safe haven’ asset.
What is a Bitcoin?
Bitcoin is a virtual currency that is created from computer code. Unlike a real-world currency such as the U.S. dollar or the euro, it has no central bank and is not backed by any government.
Instead, its community of users control and regulate it. Advocates say this makes it an efficient alternative to traditional currencies because it is not subject to the whims of a state that may wish to devalue its money to inflate away debt.
Just like other currencies, bitcoins can be exchanged for goods and services — or for other currencies — provided the other party is willing to accept them.
Where does it come from?
Bitcoin was launched in 2009 as a bit of encrypted software written by someone using the Japanese-sounding name Satoshi Nakamoto.
In 2016, secretive Australian entrepreneur Craig Wright said he was the creator, but some have raised doubts over his claim.
Other digital currencies followed but bitcoin was by far the most popular.
Users can “mine” bitcoins — bring new ones into being — by having their computers run complicated and increasingly difficult processes.
However, the model is limited and only 21 million units will ever be created.
What’s it worth?
Like any other currency, it fluctuates. But unlike most real-world analogues, bitcoin’s value has swung wildly in a short period.
When the unit first came into existence it was worth a few U.S. cents. Its price topped out at $1,165.89 on the Bitcoin Price Index, an average of major exchanges, in 2013.
There are presently more than 16 million units in circulation. Some economists point to the fact that because it is limited its price will increase over the long run, making it less useful as a currency and more a vehicle to store value, like gold.
But detractors point to bitcoin’s volatility, security issues and other weaknesses as flaws that will eventually undermine it.
Why has its value risen in recent months?
Analysts have suggested a number of reasons, including investors buying bitcoins as a hedge against currencies that are weakening against the U.S. dollar.
Other reasons include the currency turning into a virtual safe haven at a time of global economic uncertainty.
The currency may also have been strengthened by the rise of digital payments and the dwindling supply of new bitcoins.
What’s the future?
Some commentators say that like many technological developments, the first iteration of a product will encounter difficulties, possibly terminal ones. But the trail it blazes might smooth the way for the next crypto-currency.
Problems include an apparent vulnerability to theft when bitcoins are stored in digital wallets.
A major Hong Kong-based bitcoin exchange suspended trading in 2016 after $65 million in the virtual unit was reportedly stolen by hackers.
The virtual currency movement also faces legitimacy issues because of the way it allows for anonymous transactions — the very thing that libertarian adopters like about it.
Detractors say bitcoin’s use on the underground Silk Road website, where users could buy drugs and guns with it, is proof that it is a bad thing.
If bitcoin does become more widely accepted, experts say, it could lead to more government regulations, which would negate the very attraction of the bitcoin concept.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.