FOLLOWING a sky rocket boom in the cryptocurrency market and a huge return on investments, trading and other crypto related activities; increased calls by relevant authorities as regards taxation of profits on virtual currencies have become common.
Government, financial institutions and tax authorities alike have sought ways to first regulate and subsequently charge taxes on virtual currencies with an argument based on its view of crypto as an asset liable to huge profits over time; hence subject to tax laws.
At this time, most countries have drafted varying tax models to this effect with its most recent adaptors Israel and Japan posing a tax scheme between 20%-42%, 15%-55% respectively which is dependent on utility for investors, miners, traders and crypto exchanges.
With varying specifications, the most common tax scheme is the Capital Gains Tax as in (assets, stocks, bonds and properties) as payable by cryptocurrency investors and the Value Added Tax(VAT) as payable by miners and on crypto related businesses.
Aside its profit needs and implications, authorities further opine that taxation on cryptocurrencies provide a mechanism to shunt the effect or plague by individuals who convert fiat sums to virtual currency in a bid to evade tax charges and commit fraud.
The US Internal Revenue Service (IRS), defines virtual currency as a digital representation of value, medium of exchange and store of value; hence its tax charge laws on virtual currencies since March 2014. However, only a handful .04% of US cryptocurrency holders have reported crypto tax gains to the IRS, this in contrast to a 7% American population who own virtual currencies.
As a counter measure; the IRS had sought to obtain legal jurisdiction for an assessment of US customer accounts on popular cryptocurrency hub; Coinbase with this move hitting the rocks as enthusiasts and crypto believers kicked against this move with arguments based on privacy and decentralization mantra.
In same vein, a few cryptocurrency activities have been exempted from tax charges to include; offering virtual currency as gifts, wallet to wallet transfers, buying crypto with USD fiat(as it is assumed no gains are made till you trade), de minimus exemption for small transactions (below $600).
However, a few crypto analysts have thrown their weight behind the implementation of cryptocurrency tax laws. Most argue that the subject of taxation only serves as a pointer to the realization by authorities that the digital currency movement cannot be stopped hence recognition and a sizeable share of the bounty is all the authorities require.
It is believed that this move would strike a balance between government interests and consequent boom of the cryptocommunity; if tax fairness prevails.
Having explored its dual effect, it is advised that cryptocurrency owners keep valid records of transactions in line with tax requirements and as essential measure employ the services of tax professionals in cases of fines as there are yet to be feasible guidelines by the IRS, and relevant authorities as to how these tax laws would apply especially considering the universality of cryptocurrency exchanges and difficulty tracking transactions on foreign exchanges. To this end; the cyptocurrency community awaits its next move.