Should Cryptocurrency Gains Be Taxed?

It is often touted that Cryptocurrencies are free from regulation, although in many ways this is true as they do not fall under the control of the central banking network. They do however attract taxation on the profits gained by crypto trades in some countries. Now that crypto is here to stay many countries are looking at the way crypto could be taxed. Some countries already have legislation in place to tax crypto profits. Not all countries tax crypto in the same way, or to the same extent. Crypto trading has proved profitable for long enough now that it has been noted as a potential revenue stream by governments; some countries have taken steps to tap this revenue stream as early adopters, while other countries have yet to make a decision on the implementation of any future taxation systems for crypto profits. Here’s a quick summary of a few countries that have taken the decision to levy taxes on crypto gains.

Belgium

Belgium adopted rules for crypto taxation in 2017; their implementation saw Belgium become one of the countries with the highest crypto-related taxes for its residents. Belgium’s crypto taxation starts with a 33% capital gains tax levied on transactions. In addition, Belgium is a country that withholds a percentage of tax from professional crypto-related income; this can be as high as 50%.

Iceland

Iceland’s crypto tax system is tiered with gains relating from trades up to the value of $7000 are taxed at up to 40% with higher gains incurring a 46% taxation rate.

Israel

Israel levies a capital gains tax on the profit from crypto transactions; this can be up to 33% depending on the value. Like Belgium, Israel sees businesses involved in crypto trading liable for taxation on their profits of up to 50%.

The Philippines

The Philippines operate a taxation allowance of up to $4500 in crypto profits, but further income is taxed at a rate of 35%. The government has plans for further taxation to be introduced by 2024

Japan

Japan classifies the profits from crypto trading as miscellaneous income and it falls under their progressive taxation system with rates varying on the level of profit. The tax ranges from 5% at the low end to a top end of 45%.

Whilst Manila is thought to be introducing taxes for Cryptocurrency sometime in the future there are some others that already do. For example, the US, France and India all operate systems that ensure people who make a profit in Cryptocurrency trading are subject to needing to pay taxes.

This of course means there are countries out there that offer a better deal for crypto traders, countries like Germany, Switzerland, Slovenia and Singapore currently offer lower taxation. Germany’s system places no tax on profits from crypto trades as long as the crypto has been held for 1 year or more.

There are some countries that don’t tax crypto profits, or the taxation level is very low. Some of these include Belarus, Bermuda, the United Arab Emirates, Africa and The Bahamas.

How Are Things Progressing

It is a very fluid time for crypto taxation globally with countries often announcing changes to their crypto taxation systems. The latest being Portugal whose government has proposed a 28% tax to be imposed on the profits from crypto trading. This tax, if adopted, would take away Portugal’s long-running status as a tax haven for crypto traders. The tax would only apply to the profits gained from trading Cryptocurrency that have been held for less than a year.

Long considered a cryptocurrency tax haven, Portugal’s government has proposed a 28% tax on capital gains from Cryptocurrencies held for less than a year. This is in addition to Portugal’s budget proposals for a 4% tax for the transfer of inherited Cryptocurrencies.

There are arguments for and against crypto taxation, each side has a valid argument and inevitably the outcome from any taxation levy change is different depending on which side of the fence you sit on.

Cryptocurrency owners may represent a larger percentage of those not in favour of taxation. Of course, it is completely understandable that crypto owners are upset that some nations have decided to tax traders on their gains, similar to how some countries tax gamblers on their winnings at fast payout casinos. But much like regulation has improved customer confidence in the online casino industry, the argument for crypto taxation hinges on the regulation and taxation of the crypto industry being good for both the confidence of the currencies holders, but also for the governments of countries that have a vested interest in keeping the industry healthy as the taxation raises valuable income for the individual countries government.

The Future of Cryptocurrency Taxation

Being seen as a currency whose trade generates profits and revenue for governments could be a great thing for the long-term future of crypto. For each country that accepts it as part of their financial institution’s tradable currencies, and accepts the taxation in the same manner as traders accept taxation on profits from FIAT currency trades can only encourage their government to take care when implementing any future regulation of the crypto industry as they themselves will benefit incrementally as the success of the crypto industry within their specific country grows.

The truth is that in the grand scheme of things, Cryptocurrency is a relatively new addition to the world of financial trading so things are still progressing and being decided. Largely the buying, selling and trading of digital currency is largely unregulated and this is probably one of the things that will change soonest. As it starts to become more popular, government bodies will be wanting to do what they can to ensure investors are kept safe – and that is where we may start to see some regulation come into play. This regulation is likely to bring more of a formal structure to Cryptocurrency and therefore line everything up to be able to efficiently tax it, although how this works will vary from country to country. 

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Disclaimer:

• As per the Public Gambling Act of 1867, all Indian states, except Goa, Daman and Sikkim, prohibit gambling
• Land-based casinos are legalized, with certain guidelines, in Goa and Daman, as per the Goa, Daman and Diu Public Gambling Act 1976  
• Land-based casinos, Online gambling and E-gaming (games of chance) are legalized in Sikkim under the Sikkim Online Gaming (Regulation) Rules 2009
• Only some Indian states have legalized online/regular lotteries as per and subject to the conditions laid down by state laws. Kindly refer to the same here
• Horse racing and betting on horse racing, including online betting, is permitted only in a licensed premise in select states. Kindly refer to the 1996 Judgement by the Supreme Court Of India here and for more information
• This article does not endorse or express the views of Qrius and/or any of its staff.