Do cryptocurrency transactions need to be taxed?

From OK to Huobi, people have all kinds of speculations, but an article on People's Daily today seems to give us some clues.

The matter seems to be related to USDT money laundering.

❖People's Daily Online Article❖

The People's Daily article expressed three meanings:

First, buying currency abroad and selling it for RMB in China, or buying currency in China and selling it abroad, are both suspected of money laundering crimes.

Second, assisting others in the flow of funds is also suspected of money laundering.

Third, if you make a profit through currency exchange, you must declare personal income tax.

❖A-share trading❖

Let’s not talk about money laundering, let’s just talk about paying taxes. Simply put, both cryptocurrency and stock speculation are investment and speculation behaviors, so do you also need to pay taxes when speculating in A-shares?

The Individual Income Tax Law of the People's Republic of China only stipulates interest, dividend and bonus income.

Source: National Tax Service website

Original link: http://www.chinatax.gov.cn/chinatax/n363/c1186/content.html

Needless to say, dividends refer to the dividends and profit distributions issued by listed companies to stock holders after they make profits. They are not the proceeds from stock speculation. The proceeds from stock speculation are the price difference income that investors make when they buy low and sell high.

The following content can be found in the "Tax Service > Taxpayer School > Tax-Related Behavior Guide" of the Beijing Municipal Taxation Bureau. It clearly states that the income obtained by individuals from the transfer of listed company stocks is temporarily exempt from personal income tax.

Source: State Administration of Taxation Beijing Municipal Taxation Bureau website

Original link: http://beijing.chinatax.gov.cn/bjswj/c104440/201906/b08046a6f6814639b4bcab26db3eca6b.shtml

Therefore, we can clearly see that there is no need to pay personal income tax for A-share transactions.

❖Currency Market Trading❖

A-share trading does not require personal income tax, but cryptocurrency trading does. Is this reasonable? I personally think it is reasonable.

➤Legal perspective

The tax law has never stipulated that A-share trading is a tax-free behavior. The taxable behavior stipulated in the tax law includes the income from the transfer of listed company stocks. The Personal Income Tax Law stipulates that the taxable objects (Part 9) clearly include the income from the transfer of stocks.

The stocks of listed companies are obviously securities. If we think about it, all kinds of cryptocurrencies, whether they are currencies, securities, assets, or tokens, are all property. Therefore, the transfer of cryptocurrencies or tokens is a taxable act for personal income tax.

➤Market logic

Why do taxes exist? Two reasons.

First, whether the government is a management-oriented government or a service-oriented government, its function is to make the social and economic order run better. The operation of the government requires venues, materials, facilities, personnel... all of which cost money. Since the government is for the better operation of the social economy, these costs should also come from the social economy, so we make money or benefit from the government's management to a certain extent. So we have to pay taxes.

Second, the most important role of taxation is regulation. For example, if someone is born in Shanghai, then you have more opportunities to study, a good working environment, and more income, but some people are born in remote mountainous areas. Their wisdom and diligence are not inferior to those born in Shanghai, but the environment restricts their development. This is not just a matter of fairness. We can compare it this way. A person born in Shanghai is doing a job, but another person in a remote mountainous area is more suitable for this job than the Shanghai person. This is more beneficial to this position, the company, and even the entire society. Therefore, taxation collects taxes from Shanghai people and then invests the funds in remote mountainous areas, which is for the better development of society.

In addition to the relationship between regions, between urban and rural areas, and between people, taxes are also used to regulate the relationship between people and nature. Some taxes are related to the natural environment, such as resource taxes. The government can use these taxes to maintain the natural environment.

From the first logic, do people who speculate in cryptocurrencies make money in the crypto market and are completely out of government management and services? Obviously not. Under government management and services, social order is good and the financial ecology is stable, which is the basis for speculating in cryptocurrencies. Therefore, speculators have to pay taxes.

From the second logic, it goes without saying. Many dealers use the scale advantage of capital to influence the price of coins, and eventually retail investors lose money while big players gain profit; some project parties use their own technology or influence to issue cryptocurrencies or tokens, and retail investors buy these coins, while the project parties only need to sell the coins issued out of thin air to make a profit... This is the distribution relationship within the coin market, and dealers and big players are making profits from retail investors.

We observe the relationship between the cryptocurrency market and the cryptocurrency market, and we also find that there is an imbalanced distribution. Some blockchain projects have made almost no contribution to society. Let me boldly give an example, TRON. We have to admit that TRON is a good coin, TRON marketing is even better, and TRON ecosystem is not bad, but what contribution has TRON made to society? We cannot say that there is none, but compared to other original projects, TRON’s contribution to blockchain technology is indeed small. However, TRON project owners, as well as some participants and investors in the TRON ecosystem, can make a profit. We have to admit that this is due to the wisdom and hard work of these people, but these things do not contribute much to society.

Therefore, taxing cryptocurrency transactions is actually a form of regulation.

➤Tax base and tax rate

According to the tax law, the tax base for personal income tax on cryptocurrency transactions is the selling price minus the buying price minus other expenses. Of course, if it is a negative number, no tax is required.

Cryptocurrency transactions, as property transfers, should be taxed at a 20% rate.

If the tax law does not make special provisions for cryptocurrency transactions, the tax base and tax rate should be calculated in this way.

❖Good or bad ❖

➤Comparison with A-shares

Compared with A-shares, the document in the previous screenshot also clearly states that "in order to cooperate with enterprise restructuring and promote the steady development of the stock market", the personal income tax payable on the transfer of listed stocks will be "temporarily exempted".

However, cryptocurrency transactions are required to be reported for personal income tax.

It goes without saying. It obviously promotes the stock market and does not promote the cryptocurrency market.

➤100% suspected of money laundering

People's Daily cited two situations that are suspected of money laundering: one is buying cryptocurrency abroad and selling it domestically; the other is buying cryptocurrency domestically and selling it abroad.

The problem is that operating cryptocurrency trading platforms is prohibited in China, so 100% of our currency-to-currency transactions are foreign transactions, so we are 100% suspected of money laundering.

➤High personal tax

One situation that People's Daily Online did not mention is the situation where we bought in RMB and then sold in RMB in China. However, if we can provide evidence that we bought and sold in China, then we can clearly calculate our income. On this basis, we have to pay personal income tax.

Earlier, Little Bee introduced the tax base and tax rate of personal income tax for cryptocurrency transactions.

20% tax rate.

If you make 100,000 yuan from cryptocurrency trading, you have to declare and pay 20,000 yuan in personal income tax. This amount is not low. You should know that the corporate income tax for general taxpayers is only 25%, and companies have various preferential policies. Companies can legally save taxes through tax planning, such as donations, hiring a number of disabled people, etc. In comparison, this 20% tax is too high.

❖Written at the end❖

It turns out that Xiao Mifeng has always believed that Huobi froze the card because some illegal income (such as fraudsters) was in Huobi, and the money was laundered through USDT, which led to the card freezing.

However, the article on People's Daily Online has clearly stated that using RMB to buy or sell USDT is suspected of money laundering. Unless we can prove that all our transactions are in China, we will have to pay 20% personal income tax.

Therefore, this article from People's Daily is not really good news.

The reason why the People's Daily article makes people feel positive is that the tax collection seems to allow cryptocurrency speculation. But in fact, it does not. Comparing the tax law's policy on A-shares, we will find that the supervision has only become stricter.

Because Chinese law prohibits operating cryptocurrency transactions, but holding coins is legal, and transactions between individual users are also legal.

So OTC transactions in the past took advantage of this loophole.

However, the article on RMB.net simply tells us that this loophole has been completely blocked.

Coin-to-coin transactions can only be conducted on foreign platforms, so we must have a process from abroad to domestic, so OTC transactions are 100% suspected of money laundering.

The little bee even thought about whether we could simply do OTC abroad and use PayPal to trade USDT in US dollars or other foreign currencies.

But, unfortunately, when we transfer US dollars or other foreign currencies from PayPal to our bank card, we have a foreign currency income.

However, our overseas income still needs to be combined with domestic income to calculate the taxable income.

If a large amount of foreign currency is deposited into our bank card, we may face some trouble.

Some people say that collecting taxes is legal.

The first problem is that you must first prove your legitimacy before you can pay taxes. You must provide proof of transactions for buying and selling coins overseas and calculate the specific income before you can pay taxes. And how do you trade overseas? This process raises new legal issues. Do you still think this is good news?

The second problem is that the tax rate is at least 20%. Japan once set the tax rate for this cryptocurrency at 55%. Do you still think this is good news?

Of course, the legality of OTC transactions has been completely blocked, but it is not that OTC transactions have been completely blocked. People with small funds can still withdraw funds from small and medium-sized exchanges. This is not necessarily bad news.

But do you still think this is good news?