- Crypto assets pose significant tax challenges due to their decentralized and anonymous nature, which makes it difficult for tax systems to keep up.
- There are over 10,000 variants of crypto assets, and their rapid development has left tax systems playing catch-up.
- Governments need to address the challenges of taxing crypto assets to prevent a leakage in tax revenue and protect the integrity of the tax system.
- The classification of crypto assets as property or currency is a key issue, and capital gains should be taxed as they would be on other assets.
- Purchases made with crypto should also be subject to the same sales or value-added taxes as cash transactions.
- However, enforcement is a challenge due to the pseudonymous nature of crypto transactions.
- Revenue considerations suggest that a 20% tax on capital gains from crypto would have raised about $100 billion worldwide in 2021, but tax revenues would shrink with losses.
- There are also fairness issues at stake, as ownership of crypto is heavily concentrated among the relatively wealthy.
- The biggest threat from crypto is the potential for widespread evasion of VAT and sales taxes, leading to lower government revenues.
- Implementation is at the heart of the matter for tax authorities, as transactions through centralized exchanges can be subject to standard tracking rules and withholding taxes, but reporting obligations could induce people to keep tax authorities ignorant by using centralized exchanges abroad.
Source IMF
