Governments around the world have had an epiphany. It has dawned on them that all this economic activity in the cryptocurrency space is creating massive amounts of wealth. However, failing to legitimize the value of the cryptocurrencies and digital assets are also keeping those revenues in grey markets and out of the treasuries of government institutions. Now, that is beginning to change. Here are a few examples of governments taking a look at cryptocurrencies and blockchain from a revenue collection perspective:
- Ukraine – In 2018, twenty three government officials in the Ukraine have initiated a bill that would tax digital assets including cryptocurrencies and tokens. This initiative aims at accomplishing three things. One, they are to legitimize cryptocurrencies; two, establish a stable regulatory framework to encourage economic activity, and three, increase revenues to the national government. According to the bill, starting in 2019, an additional $43 million will be raised annually. Going even further, in May 2018, Head of Ukraine’s National Securities and Stock Market Commission (SSMCS) Timur Khromaev revealed that the commission will consider recognizing cryptocurrencies as a financial instrument, stressing the need for the legal recognition of cryptocurrencies, which was subsequently supported by the Financial Stability Council in July.
- Arizona, USA – Senate Bill 1091 which would allow state taxes to be paid in Cryptocurrency has passed and is on its way to the Arizona House of Representatives. Arizona State Republican Rep. Jeff Weninger, who co-sponsored the bill, said the tax measure intends to turn the state into a center of “blockchain and digital currency technology in the future”. Referring to the tax bill, Weninger said “It’s one of a litany of bills that we’re running that is sending a signal to everyone in the United States, and possibly throughout the world, that Arizona is going to be the place to be for blockchain and digital currency technology in the future.”
- Georgia, USA – In 2018 the State of Georgia considered a bill introduced by Senator Michael Williams that would allow for state taxes to be paid with cryptocurrency.
- Switzerland (Chiasso & Zug)– Two cities in Switzerland are collecting tax payments in cryptocurrencies. First Zug, and soon the city of Chiasso, will begin accepting cryptocurrencies for tax payments in January of 2019.
But, beyond this, some governments have begun to compete for wealthy taxpayers. They realize that income sources are becoming divorced from physical locations in ways that were totally unimaginable 20 years ago. For example, Puerto Rico and Estonia are two places that are drawing huge sums of capital from outside of their borders. Puerto Rico has tax policies that attract crypto millionaires and Estonia has an E-Residency program that allows anyone to virtually move into their economy by paying a small fee. Some have projected that Estonia could become one for the wealthiest countries in the world because of their approach to blockchain and digital assets.
What does this mean for government revenue officials? Clearly, crypto currencies are here to stay. They will continue to become greater and greater segments of the global economy. Some governments have already recognized this and are working to prepare for that reality. The real question is, when that day comes, will our governments be ready?
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Join the GBA Taxation and Revenue Collection Working Group at www.gbaglobal.org/groups/taxation-revenue-collection-working-group. You must become a GBA Member first, than you can join the WorkingGroup.
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