Countries across the world have been grappling with the question of how to regulate cryptocurrencies for the last few years. Despite all the cryptocurrency regulation drafts and panel discussions, most of them have made only partial progress on that front and cryptocurrencies continue to remain in the grey area. However, tax authorities are desperate to jump into this $290 billion market and claim their share of the earnings of crypto investors and traders.
Here are 5 countries that have recently updated on how that they will taxing (or not taxing) cryptocurrencies –
In the US, Bitcoin could be a commodity, a property or security, depending on which regulator – CFTC, IRS or the SEC, one is referring to. A recent hearing hosted by the United States Committee on Banking, Housing and Urban Affairs had a lot of discussion on if bitcoin should be banned or could be banned, but the members of the hearing were unable to arrive at any definitive answers on the issue.
However, despite the cryptocurrency’s current inconsistent status across states and regulatory bodies, the IRS is sending letters to crypto account owners, informing them about the rules around cryptocurrencies and urging them to report their income correctly.
IRS Letter 6174
We have information that you have or had one or more accounts containing virtual currency but may not know the requirements for reporting transactions involving virtual currency, which include cryptocurrency and non-crypto virtual currencies. After reviewing the (educational) information below, if you believe you didn’t accurately report your virtual currency transactions on a federal income tax return, you should file amended returns or delinquent returns if you didn’t file a return for one or more taxable years.”
Failure to properly report “the income tax consequences of virtual currency transactions” may lead to tax, interest, penalties or even criminal prosecution.
In India, the Income Tax Department sent tax notices to crypto investors and traders in July that included a list of 26 questions around the recipients’ sources of income, their cryptocurrency transactions, the platforms they have used for transacting in cryptocurrency and whether they have paid taxes on their profits from cryptocurrency earnings. Furthermore, the notice orders the recipients to appear in the Office of the Deputy Director of Income Tax on a specified date and provide evidence with either book of account or other documents regarding their sources of income. It also instructs them “not to depart until they receive any permission from officials to do so” and warns about the possible fine of up to Rs.10,000 if they fail to come and provide the required evidence.
It is to be noted that India has imposed a banking ban on cryptocurrencies and an unverified document recently leaked by blockchain lawyer Varun Sethi suggests that India might impose a blanket ban on all cryptocurrencies except digital rupee and digital foreign currencies. The draft bill, titled, “Banning of Cryptocurrency & Regulation of Official Digital Currencies” states
“No person shall mine, generate, hold, sell, deal in, issue, transfer, dispose of or use Cryptocurrency in the territory of India.”
However, no official decision has been announced as yet on the blanket ban on cryptocurrencies.
Brazil became the latest country to join the list of countries imposing taxes on cryptocurrency. Earlier in May, Brazil’s Chamber of Deputies President, Rodrigo Maia, had ordered the creation of a commission to work on designing cryptocurrency regulations. There has been no public update on any developments on that front. However, as per the latest reports, the Department of Federal Revenue has ordered compulsory disclosure of information about transactions in excess of $30,000 Brazilian real ($7,600) to tax authorities. The move, aimed at both private investors and crypto companies, is being seen as a means of increasing tax revenues.
Crypto traders in Singapore may have soon had a reason to rejoice because the tax authority of the country might exempt cryptocurrency transactions from GST. On July 5, the Inland Revenue Authority of Singapore (IRAS) published an e-Tax draft guide for detailing guidelines on taxing “Digital Payment Tokens”.
The guide clearly states what constitute “Digital payment tokens” –
The approval of the draft guide will lead to the following changes taking effect from 1st January 2020 –
The IRS is also seeking feeding on this change of GST treatment from businesses that are dealing with cryptocurrency transactions.
The Singaporean government’s approach to regulating and taxing cryptocurrencies makes it one of the few countries that are developing an environment conducive to the growth of digital cryptocurrencies.
Georgia recently released an update on the taxation of cryptocurrencies, despite the inadequacy of regulations around them. The country’s finance minister, Ivane Matchavariani, recently signed a bill that clarifies how entities trading cryptocurrencies, both companies, and individuals, are to be taxed.
According to this new bill, residents of the country will be able to exchange cryptocurrencies for fiat currency without having to pay VAT on the transaction. This implies that the country may be looking at Bitcoin as currency since VAT is levied on goods and services only.
It is to be noted that the Georgian lari will remain the legal tender in the country, and cryptocurrencies, like foreign fiat currencies, will not be accepted for payments. Mining companies will have to pay VAT unless they are registered abroad.
The absence of express regulations around cryptocurrencies is a cause for consternation among cryptocurrency holders, especially when regulators in countries such as the USA and India are proposing a complete ban on cryptocurrencies and even suggesting the penalization of those holding cryptocurrencies. At such a time, the news of cryptocurrency taxes could be looked at as a cloud with a silver lining.
If the tax agencies in the world are drafting tax regulations around cryptocurrencies, it implies that they are not planning to ban cryptocurrencies. Cryptocurrency investors would rather have regulations around cryptocurrencies and pay taxes on their crypto earnings than live in the constant fear of being penalized in the case of a cryptocurrency ban.
For economies, regulating crypto might be a more favorable option as they will be able to benefit from additional tax revenues. Banning cryptocurrencies will only push this burgeoning market underground where the authorities will have little visibility or control over cryptocurrency trade.
All things Blockchain & Crypto. 3 years for writing for Crypto Publications, ICOs and Blockchain cos. Book Junkie. Travel Freak. Food rules my mood. Enough said. Follow me on twitter @vinniesingh7 or mail me at vinnie[at]squadx.io