Legalization of cryptocurrency entails not only advantages for cryptoinvestors, but also disadvantages. One of them is the cryptocurrency tax. How is cryptocurrency taxation organized? What do taxpayers give money for and is taxation a disadvantage? We will describe in this article!
What is a cryptocurrency tax and what is the peculiarity of this type of taxation?
Taxation in the cryptosphere is the collection of taxes from crypto users, which are subject to different types of crypto activities or crypto-operations. It is implemented, as a result, also in different ways.
As a result, the tax authorities of each state act to selectively determine which particular area requires regulation and which tax system will be optimal.
The remaining areas are often included in the selected tax system as far as possible. Sometimes, regulators are not included at all, they are limited only to the selected area and wait for legal certainty in the global cryptocurrency space in order to build their own cryptocurrency legislation on global practice.
For example, if the population begins to actively invest in cryptocurrencies and engage in trading, regulators will pay attention to crypto-exchange. If the country can buy cheap equipment for mining and miners are actively using it, mining will be adjusted. If many trade points accepting cryptocurrencies have opened in the country, then work will begin on taxation of trade operations. And so on.
The functions of the tax service are the replenishment of the state budget and monetary control. Naturally, first of all, the tax authorities will pay attention to the areas where substantial money is concentrated.
In the states where the tax service works like a clock, the tax authorities will most likely pay attention to cryptocurrency earlier – because all other areas are regulated.
Taxation here can even be taken more as a preventive measure than as a means to regulate an already developed area. For example, if the country has good mining resources (cool climate, the possibility of building large power plants on renewable energy sources), regulators can take care of the mining tax in advance.
In countries where tax regulation is not well-established, and the population has a habit of evading taxes, cryptocurrency becomes the object of attention of tax authorities, as a rule, later, because cryptocurrency regulation is difficult and implementing it with an unadjusted general system is difficult.
On the other hand, in countries with a non-adjusted tax system there is often a problem of a state budget deficit, and this can provoke tax officials’ interest in cryptocurrency as a source of rapid replenishment of the budget. However, in this case, even if the law is soon adopted, its implementation may be problematic.
Tax on cryptocurrency: implementation problems
The listed examples can be combined, supplemented with other rare types of taxes. In addition, regulators can change the status of cryptocurrency and crypto activities so that they fall under more tax laws. But all this creates a huge number of loopholes.
The first and second paragraphs often contradict each other, and this is only one of the problems faced by the tax authorities. Fully register in the tax legislation all types of cryptocurrency activities, taking into account all the nuances could not have anywhere else.
Lawyers are trying to solve these problems for months or even years. For example, in Russia they began to talk about the tax regulation of cryptocurrency in 2016, but there is still no clear bill. They are trying to combine the incompatible French regulators for months. The situation is similar in Ukraine and in many other European countries.
The result is ultimately the same everywhere or the maximum possible control and many loopholes for experienced lawyers due to the fact that different parts of the law are not consistent with each other, as in the US, for example or very weak and incomplete regulation in the most developed areas of the cryptoindustry (many EU countries and others).
Tax on cryptocurrency: advantages and disadvantages for investors
This leads to the fact that some investors leave the market, not wanting to work in conditions of uncertainty. Another reason is a regulation in principle.
But it is curious that the subsequent recessions are less than the previous ones. This is explained by the fact that the maximum of investors who opposed tax regulation have already left the market, but those who are willing to pay taxes are left, because for them taxes mean increased reliability.
For example, the unregulated trading by anyone entailed the unofficial status of a crypto counter and the insecurity of a trader in the event of a stock exchange crash. Regulated trading gives official status to the exchanges, and if the trader is a careful taxpayer, he is already protected by laws that regulate the interaction between the trader and the exchange, including in the event of its collapse.
Similarly, mining develops, where large entrepreneurs come who were not ready to work at their own peril and risk, but are ready to create mining farms as legal cryptocurrency companies.
In the eyes of ordinary users it is variably. Some oppose, but some fully approve of the general trend, since taxation of cryptocurrency will entail strengthening them in the global economy.
In general, cryptocurrency taxation is not such a pessimistic scenario as it appears. The most significant disadvantage of crypticcurrency taxation today is the uncertainty and dampness of the laws, but in the end, this is solved with the help of lawyers and practice.