Russia's Crypto Taxes Reach $13 Billion, Which Countries Are Taxing Crypto?

Recently, a report from the local Russian media The Bell showed that the Russian government's crypto tax revenue is as high as 1 trillion rubles (about 13 billion US dollars). In addition to Russia, countries including the United States, South Korea, India, Thailand, the United Kingdom, South Africa, Switzerland, etc. have already or are planning to impose taxes on crypto-related transactions. With the gradual increase in the market value of the crypto market, taxation has become a topic of focus for tax authorities and legislatures in various countries. Which countries have already begun or are planning to introduce tax policies related to crypto assets? What does taxation mean for crypto assets and what impact will it have on the crypto market?

1. Russia

On February 9, according to a document on cryptocurrency regulation proposals released by the Russian government, Russia may allow crypto asset transactions, but users can only purchase them through locally registered and licensed companies so that government agencies can obtain these identity transaction information. However, all crypto asset-related transactions exceeding 600,000 rubles (about 51,000 yuan) must be reported to the Federal Tax Service, otherwise it should be considered a felony.

2. India

India is one of the fastest growing markets for crypto trading in the world, and is one of the countries that implemented crypto taxation earlier. On February 1, 2022, local time, the budget submitted by Indian Finance Minister Nirmala Sitharaman stated that any income from the transfer of virtual digital assets will be taxed at a rate of 30%, including crypto assets and NFTs, as well as other ways people earn from digital assets, such as mining, liquidity gains, etc. At the same time, on February 2, the Indian government stated that it would not consider crypto asset transactions illegal.

Finance Minister Sitharaman said that the scale and frequency of crypto transactions make it necessary for the government to provide a specific tax system for collecting cryptocurrencies. In addition to high tax rates, India does not allow any deductions or discounts when calculating crypto-related income. In the country, 30% is the highest tax rate applicable to individuals with annual income exceeding 1.5 million rupees, compared with traditional tax rates. Therefore, crypto taxation will be a considerable income for the country. According to a report by Chainalysis in October last year, the Indian crypto asset market grew by 641% between July 2020 and June 2021. It is expected that by 2030, the size of the Indian cryptocurrency market will reach US$241 million.

3. South Korea

In addition to Russia and India, which have recently introduced crypto taxation plans, South Korea has also been one of the most active countries in the crypto market. South Korea's taxation plan for the crypto field has been brewing for a long time. Originally, the South Korean government had officially determined the taxation plan last year and planned to start taxing in January 2022. However, in December 2021, South Korean legislators decided to postpone the taxation of cryptocurrency transactions to January 1, 2023. According to the original taxation plan, the annual cryptocurrency income obtained by Korean resident taxpayers is tax-free for the part below 2.5 million won, and the part above 2.5 million won is subject to capital gains tax at a rate of 20%. The reporting period is from May 1 to May 31 of the following year. The income to be reported includes domestic and foreign income. Failure to report will be fined 20% of the amount of the concealed amount; citizens are obliged to pay taxes on cryptocurrencies they give or inherit from family members or acquaintances in accordance with relevant tax laws.

Compared to the tax burden borne by Korean investors on stock gains, South Korea's crypto taxation plan requires two major differences: stock investors only pay taxes on gains exceeding 50 million won, while crypto asset investors are required to pay taxes on gains reaching 2.5 million won. In addition, stock investors' losses can be carried forward for 5 years, while crypto investors' losses cannot be carried forward.

4. United States

As one of the countries with the greatest regulatory influence, crypto assets have also been an area of ​​continuous concern for the Internal Revenue Service (IRS). As early as 2014, the IRS determined that Bitcoin is property, similar to other valuable commodities, but not currency, and put forward the requirement of "reporting information for cryptocurrency transactions as a reference for tax returns", but did not clarify the specific rules. It was not until 2016 that the IRS announced the identification of five compliance activities, including virtual asset tax issues. And the court approved the acquisition of the identity and transaction history information of US customers of Coinbase, a large US cryptocurrency exchange, in order to tax cryptocurrencies. In 2019, the IRS began to formulate a guide to crypto taxation. According to previous IRS regulations, crypto asset holders must record their trading activities and gains/losses, fill out and submit Form 8949 to register with the tax department.

Current U.S. legislation requires that any cryptocurrency gains must be reported as taxable income, regardless of the size or purpose of the transaction. Legislators believe that current laws "not only make the daily use of virtual currencies almost impossible, but also inhibit the growth of the digital economy." Under current U.S. tax law, the tax rate for capital gains events is approximately 20%. The deadline for residents to file taxes on cryptocurrency and fiat currency income is April 18.

5. United Kingdom

In November 2021, the UK's Her Majesty's Revenue and Customs (HMRC) published tax guidance to help cryptocurrency traders and investors understand their tax obligations in the UK. HMRC said that cryptocurrencies are not considered currencies, but more like traditional investments such as stocks, so cryptocurrency profits are subject to capital gains tax. The guidance proposes that profits from trading cryptocurrencies should be reported annually in an individual's self-assessment tax return or a company's corporate tax return. Crypto profits are considered capital gains or losses, but it must be made clear that trading fees at exchanges cannot be offset against profits, and traders are urged to keep records. Traders can receive a personal capital gains tax allowance of £12,300 per year - this allowance is frozen until 2025. The annual allowance gains are taxed at 10% for basic rate taxpayers and 20% for high rate taxpayers. However, the guidance from the UK's HMRC is not law and has no legal force.

6. Venezuela & Argentina

In addition to the above countries, some South American countries, including Venezuela and Argentina, have also begun to impose taxes on crypto transactions. On February 7, local media in Venezuela reported that the government had approved a new tax bill aimed at collecting up to 20% in taxes from cryptocurrency transactions. Argentina announced in November 2021 that it would impose a 0.6% tax on companies providing cryptocurrency trading services.

Regarding the impact of the state's taxation of crypto asset transactions, many financial experts believe that taxing crypto transactions may reduce market liquidity and inhibit crypto asset-related transactions, especially in countries with higher tax rates, which may prevent foreign investment funds from flowing into the country. However, some investors believe that crypto taxation means that the state will include it in legislative supervision, which will put the crypto asset category on the track of legalization. In response, the Indian Finance Minister said that the current taxation policy only does not regard crypto asset transactions as illegal activities, and will not legalize or prohibit crypto assets at this stage. The legality of cryptocurrency is still an open issue.

From an objective perspective, the crypto taxation policy may reduce the actual returns of crypto investors, but it also reflects the broad change in the regulatory attitudes of various countries towards crypto assets. If the legislatures of some countries express their recognition of the legality of crypto transactions, it may have a certain impact on the price of crypto assets.