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Are Crypto Taxes A Detriment To Cryptocurrency Adoption Or Are They A Part Of It?

28 August 2019 13:37, UTC
Giorgi Mikhelidze

Reports have been piling in from all across the globe about governments demanding customers transaction information to calculate due tax on the crypto capital gain. This has been the case with the United States as well as the United Kingdom. The only difference was that the IRS didn’t request information from the exchanges, they already had it, therefore targeted crypto holders in the country with personal letters directly.

The HM Revenue and Customs agency in the UK though started with gathering the information from local crypto exchanges to later calculate the tax that is due from local crypto holders. With so many reports, it’s easy to become confused whether taxing cryptocurrencies is going to help us with their adoption or if it will motivate the crypto community to avoid them as much as possible.

Tax evasion with cryptos is already quite common

Countries like Australia and the UK have been reporting cases of hundreds of citizens avoiding taxes by using cryptocurrencies as their main drivers, which was the primary reason why taxes on cryptos were introduced. But, that doesn’t mean that these new laws are working simply because they’re targeting cryptos directly. Cases of tax evasion are still on the rise in the countries mentioned above, and here’s why.

It’s quite common to see the crypto community struggle with the whole crypto tax law. One reason is that they’re very rarely explained on a detailed level, and the other is that avoiding them is extremely easy.

Let’s take the US and the UK as examples as they have two different tax policies. The UK delegates the reporting of customer transaction history to local companies, after which it calculates the due tax and notifies the citizens. In the US, the IRS expects that crypto holders will calculate the due tax by themselves and submit it on their own.

There was one simple trick that traders in both jurisdictions did. They simply traded with offshore companies and didn’t cash out through banks and other regulated methods. The go-to method for most crypto traders were becoming the diversification of their assets on various traditional financial platforms. For example, simply glancing at this Libramarkets review is enough to see why traders were becoming interested. It’s because there was an option for it. Brokers would accept Bitcoin and allow traders to cash out through fiat or continue trading locally.

The crypto holders would deposit their cryptos on these platforms, keep it there for a while and later withdraw them through third party payment methods such as PayPal, Neteller and Skrill. It was a lengthy process, but people still committed to it just to avoid the due tax.

Did these issues hurt the adoption of cryptos?

Be it as weird as it is, the complexity of methods people had to use to avoid cryptocurrency taxes actually introduced much better crypto adoption. Sure it’s not directly government-sanctioned or approved because they want it to go through a legal pipeline, but traders were becoming much more lenient towards making payments with cryptocurrencies to merchants on various platforms, or simply finding a use for their excess coins.

It’s no secret that crypto payments have increased over the last two years, even though the markets are still as volatile as ever traders are becoming more and more likely to use crypto as their daily drivers.

Is it possible to have it happen through legal terms?

The main reason why crypto payments increased could be the general popularity of cryptos increasing all over the world, but the desire to avoid any unnecessary costs in the form of taxes definitely incentivised thousands of traders to rely on crypto for their daily needs.

If the government wants to guarantee crypto adoption in the country and have it happen on a legal basis, they need to somehow incentivise it even further, and that does not translate into even more taxes.

One of the best initiatives so far is the option to pay taxes with crypto, not for crypto. Furthermore, should the government allow a free market without any interference, it’s guaranteed to increase the local purchasing power of the consumers, therefore allowing more consumer spending, economic growth and overall more income for both the citizens and the government.

Image courtesy of Medium blog