Law Decoded: Crypto taxes and taxes on crypto, March 21–28.
It was relatively quiet in the digital asset policy department last week, as regulators and lawmakers in most key jurisdictions retreated to their offices to do the necessary homework. In the U.S., federal agencies got on with the various reports that President Joe Biden’s recent executive orders directed them to produce. Over in the United Kingdom, both the central bank and the Financial Conduct Authority also dropped position papers on crypto-related issues. After thorough deliberation, Thailand’s financial authorities spoke out against using crypto as a means of payment, while rumors of potential legal tender adoption of crypto emerged and died in Honduras.
One theme that has been conspicuous throughout the week is the relationship between digital assets and taxation. Few would argue that cities and even states offering Bitcoin tax payment options to their constituents are doing the Lord’s work that is instrumental in widening the adoption of crypto. On the flip side, digital assets are subject to taxation themselves, a position that does not necessarily advance crypto’s legitimization. Contrary to what one might have thought, India’s approach demonstrated that it is possible to levy heavy taxes on cryptocurrency transactions while maintaining ambiguity around the asset class’s legal status.
Crypto city life
As bulky national legislatures and executive agencies take their time to come up with comprehensive crypto policies, city councils in the U.S. and beyond are filling the void. Austin, the capital of Texas, has taken a bullish stance on crypto as it passed two resolutions designed to facilitate blockchain-powered innovation. The word on the street is that the city could soon get its CityCoin, joining the likes of Miami and New York. The mayor of Portsmouth, New Hampshire is pushing for allowing city residents to pay for municipal services in Bitcoin and other cryptocurrencies. Over in Brazil, Rio de Janeiro is poised to start accepting BTC payments for real estate taxes as early as 2023 — a fairly short timeline for a city that’s home to almost 7 million residents.
Taxes vs. digital assets
India has been moving fast on the path of introducing new taxation rules on cryptocurrency transactions. Despite some serious pushback from industry stakeholders — who voiced a wide range of reasons why imposing draconian taxes on crypto could be a suboptimal policy choice — the nation’s crypto community will face a 30% tax burden starting from April 1. Finance Minister Nirmala Sitharaman, who introduced the framework, has previously spoken to the effect that levying a tax on something does not mean that this thing has a legal status. Essentially, one of the world’s major crypto markets is getting rules that treat digital assets similarly to gambling profits and lottery wins. The details on how the law will be enforced in relation to decentralized finance activity are so far scarce as well.
Not today, partisan politics
Enough has been said about how important it is to stop crypto from becoming an issue with firmly entrenched divides along party lines as they are drawn in the United States’ polarized political system. It has been going pretty well so far, with crypto allies found on both the Republican and Democratic sides of the aisle. An unlikely alliance between Republican Senator Cynthia Lummis and Kirsten Gillibrand, her Democrat peer, has further cemented the spirit of bipartisanship as the two revealed a joint effort to create a comprehensive bill that would categorize digital assets and draw clear boundaries of regulatory agencies’ mandates.