To tax crypto, the IMF explained that the distributed ledger technology could be helpful.
According to the International Monetary Fund (IMF), tens of billions of dollars of crypto tax are still out there. The financial agency noted that governments are yet to address all the possible ways to tax crypto. Even if the crypto tax has no hindrances, the IMF noted the challenges in processing the action. The group released a paper on “taxing cryptocurrencies” to discuss the problems with accommodating crypto assets within the tax systems. The research did not fail to mention that the tax system is not designed for crypto, causing a significant struggle to home them. Notably, the tax systems were in place way before the emergence of blockchain technology, which has given birth to several assets.
IMF Investigates Crypto Tax and Suggests How to Gather the Pending Taxes
In the paper, the IMF noted that the “semi-anonymity” of crypto makes it difficult to tax the asset. The group also referred to its dual nature, which includes an investment vehicle and means of payment. In addition, high volatility is common to cryptocurrencies, and this is a major challenge for tax collections. As a matter of fact, there is no consensus on how to tax cryptocurrency – whether as gambling, capital gains, or income. The paper stated that crypto is not specifically influential in evading taxes considering its high fees and volatility. It noted the exploration of green taxation but called for more mechanisms to help the current situation.
Summarizing the challenges policymakers face to tax crypto, the IMF wrote:
“The greatest challenges are for implementation: crypto’s quasi-anonymity is an inherent obstacle to third-party reporting. Design problems arise from cryptocurrencies’ dual nature as investment assets and means of payment: more straightforward is a compelling case for corrective taxation of carbon-intensive mining. Ownership is highly concentrated at the top, but many crypto investors have only moderate incomes. The capital gains tax revenue at stake worldwide may be in the tens of billions of dollars, but the more profound risks may ultimately be for VAT/sales taxes.”
The financial group added that the high adoption of crypto in growing economies where there is a limit to collection technology is another setback. The category of crypto holders – the smallholders and the whales also causes the IMF not to tax crypto. The retail crypto holders require a different approach compared to the whales that hold larger portions. Hence, there is a need for a proper tax design. The agency also spoke of anonymous transactions, noting that that could result in anonymous transactions.
To tax crypto, the IMF explained that the distributed ledger technology could be helpful too. It referred to the technology’s transparency, which could help trace transaction history and eventually be used in administering the due taxes. It added that “the use of smart contracts (self-executing programs) within blockchains, for example, might in principle help secure chains of VAT compliance and enforce withholding”.