The Chinese tax publication, China Tax News called for taxing past cryptocurrency profits using the Ex post facto law, also known as the principle of “law is not retroactive”. This means that the services provided by overseas exchanges to residents of China before the official crypto ban will now be required to pay tax in accordance with China’s tax law, on their income from China before the government officially announced the decentralized markets’ illicit status in the country.
During the month of September, ten ministries and commissions along with the Central Bank issued the “Notice on Further Preventing and Disposing of the Risks of Virtual Currency Trading Hype” against foreign crypto exchange organizations in China. It laid down the legal framework that specified, “the provision of services by overseas virtual currency exchanges to Chinese residents through the Internet is also an illegal financial activity.”
“After the promulgation of the ban, some domestic trading platforms chose to “go overseas” to provide domestic users with related trading services in the form of “overseas institutions”, and gradually formed an exchange industry led by Binance, Huobi, and Ouyi. With the popularity of the virtual currency market in recent years, the transaction volume of related platforms has increased rapidly. The total 24-hour transaction volume of spot and derivatives on the top platform even exceeds one trillion yuan, which is close to the single-day transaction volume of the A-share market.”, stated China Tax News.
Unclear Crypto laws in China
However, the Chinese Journalist, Colin Wu argues that since China’s Central Bank had defined all crypto activities as illegal, taxation could indirectly recognize their legalization. Furthermore, even predate taxation still invalidates the government’s stance, as Chinese authorities had already defined crypto as illegal several times before the official PBOC notice.
China’s tax official newspaper called for a tax on crypto and said that the exchange’s taxation scale was very large. But since the PBOC defines all of crypto activities as illegal activities, taxation seems to indirectly recognize their legalization. https://t.co/SZCX5KuiB7
— Wu Blockchain (@WuBlockchain) October 20, 2021
Additionally, the China Tax News also stated that within the current legal framework, China has not banned individuals from holding cryptocurrencies such as Bitcoin. However, the transaction of virtual currencies is marked as an “invalid civil act”, which means its not explicitly prohibited by law. This raises manifold questions on China’s crypto stance, and on the government’s unclarity and contradicting crypto laws.
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