Regulations on crypto taxation has been a gray area for a long time now. Authorities found it difficult to classify these assets for taxation purposes. In recent years, a few jurisdictions have managed to create crypto taxation systems for these assets. The effectiveness of these systems is still questionable. This is because most people do not understand the cryptocurrency technology and how to properly report their returns. Joshua Azran, Founder of Azran Financial, explains:
“Crypto is not always easy to understand from a tax perspective. Any professional who tells you otherwise may lack the acumen to be able to accurately perform the necessary calculations and of course, provide proper tax advice. “
Though a few taxation authorities have managed to make a significant step within their jurisdictions. The Internal Revenue Service’s (IRS), for starters, recently sent over 1000 letters to crypto taxpayers. These are those who had failed to file their income and pay the resulting taxes. According to the IRS, taxpayers should take these letters seriously. They should review their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties. They are also expanding their efforts involving virtual currency and increased use of data analytics. They are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.
Though authorities have done a tremendous job in regulating these assets, some guidelines were not ideal. There are a few questions when it comes to IRS taxation on crypto. One of which is information reporting. While reporting taxpayers can use different methods. But they should be consistent when calculating gains and losses. Another significant difficulty is matters about crypto taxes revolving around staking.
The European region is working towards becoming a crypto haven when it comes to regulations on crypto taxation . Germany, Belarus, Portugal, Malta, Switzerland, and Slovenia have exempted crypto from specific tax brackets. These include VAT and personal income taxes, depending on the jurisdiction. Others like the Netherlands, Italy, Sweden, and Belgium have guidelines on cryptocurrencies. This comes with taxable and non-taxable disclosures on basic crypto transactions.
Last month, the Russian Ministry of Finance sent out a new draft bill addressing the circulation of cryptocurrency in Russia. The bill is devised for interested government departments. It contains amendments to the Russian Criminal Code, the Criminal Procedure Code, the Administrative Code, the Tax Code, and the law on combating money laundering. This is according to a publication claiming to be familiar with the bill. The new bill requires all exchanges and users to report their cryptocurrency transactions of a certain level. The authority explained: “In particular, any person (natural or legal) who has received digital currency or digital rights of more than 100,000 rubles [$1,280] in a calendar year is obliged to inform the tax authority and submit an annual report on transactions with such assets and the balances of these assets.”
Reportedly, the new bill attracts a fine of 30% of the crypto assets, but not less than 50000 rubles. Non-declaration of a crypto wallet with more than 1 million Rubles transaction is a criminal offense punishable by up to three years in prison.
In Africa, South Africa has taken strict measures when taxing cryptocurrencies. In Kenya, the Kenya Revenue Authority (KRA) crypto users will be obliged to pay a 1.5 % rate on gross transaction value. The implementation will start on January 1, 2021. Kenya does not have regulations when it comes to crypto transactions like the rest in the region. But it is pushing the Central Bank to recognize these assets for revenue collection purposes.
South Korea also recently decided to take cryptocurrency activities. Authorities in the area plan to tax 20% of tax profits made from buying and selling crypto. The rule will apply to local exchanges and investors residing outside the country. It will also apply to foreign companies trading on local exchanges.