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The US recently passed the Infrastructure bill that subjected crypto brokerage firms to tax reporting requirements. The United Kingdom seems to be following in these footsteps with the digital services tax.
The digital services tax is an addition to Her Majesty’s Revenues and Customs (HMRC) regulations. According to a recent Telegraph report, this tax will now require cryptocurrency exchanges operating in the UK to pay a 2% digital services tax.
HMRC is the tax authority in Britain. This body does not classify digital assets as financial instruments. Thereby, under the existing framework, crypto brokerage firms are not eligible for financial exemptions.
However, crypto brokerage firms in the UK will now be included in the tech tax by the Treasury. According to a notice issued on November 28, the HMRC stated that crypto exchanges will be subject to the digital services tax.
The digital services tax was launched in April last year, and it targeted social media giants such as Facebook and Google. However, as crypto exchange platforms operate in the tech and innovation field, they will also be subject to this tax.
The incorporation of crypto brokerage firms under the digital services tax comes after the latest classification of digital currencies. The regulatory body stated that digital assets are not classified as financial products, and they cannot enjoy the same exemption of online financial marketplaces.
the HMRC stated.
CryptoUK, a digital asset trade body for the United Kingdom, has opposed including crypto exchanges under this new taxation. The body has stated that this taxation law is unfair and that it will cause a ripple effect, which will be felt by investors and traders.
The Executive Director at CryptoUK, Ian Taylor, has stated that cryptocurrencies should be treated the same as other financial instruments such as commodities and stocks. The body stated that the failure to list cryptocurrencies as financial instruments could harm the digital asset sector.
Taylor also stated that this is not the first oppressive action taken by UK regulators. He cited the licensing requirements for crypto brokers issued by the Financial Conduct Authority (FCA).
Since the beginning of the year, the FCA stated that crypto firms must register with the regulatory body and comply with anti-money laundering requirements.
Earlier this year, the FCA banned crypto derivative products. The FCA also started clamping down on cryptocurrency exchanges in June, including Binance, the largest cryptocurrency exchange platform globally. The FCA stated that Binance needs to comply with the FCA requirements and state on its website that it is not certified by the FCA.
Moreover, this is not the first time that the HMRC is targeting tax from crypto investors. In August 2019, the FCA required that crypto exchange platforms submit details of customer transactions and holdings.