The problem of cryptocurrency and taxation
The future of cryptocurrency might depend on this conundrum: how to deal with taxation.
Just to be clear from the outset, I'm all for the good uses of taxes: education, health care, infrastructure, public sanitation, police, firefighters, legal systems, and so on. On the other hand, I'm not a huge fan of government waste, but the government needs tax revenues to function. Is it possible that the solution to taxation with cryptocurrency could solve both problems?
Here's an idea. Let me know what you think!
Say, 10, 20, 30 years from now, cryptocurrency is becoming the prevalent means of transferring value. Smart contracts could enable a way for governments to gather taxes and to reduce bureaucracy and waste. Transaction taxes - that's right - taxes on transactions, could be charged via smart contract. These transaction taxes would only be charged in certain situations as per the smart contract parameters.
For example, a client purchasing goods at a retailer would pay a transaction tax. The retailer could have a book of receiving addresses that are "registered" to the smart contract and automatically collect a transaction tax, which would be forwarded to government revenues. Employers paying employees with registered addresses would automatically pay the transaction tax on any salary or wage payout. This would eliminate the need for filing income taxes as the process would be automated via smart contract. Imagine the reduction in costs by having little to no tax bureaucracy! It could be quite a savings.
Additionally, transactions between private citizens would not be "registered" on the smart contract and therefore, would not pay a transaction tax. These transactions would continue to act the same way that cash now acts - passing money between people. If I give a friend $20 (well, if I give a friend 0.0024 BTC) or someone buys an item from me advertised on Kijiji, for example, this would remain an untaxed event.
So that's my idea: a transaction tax. Feel free to rip my idea to shreds in the comments. I'm curious what readers think!
sources:
epilawg.com/wp-content/uploads/2013/11/Taxes-II.jpg
That's a pretty cool idea. I especially like that you can do private transactions that would be exempt.
Thanks! Yeah, I think it could work. Minor "cash" transactions between private individuals would act just like cash between individuals works today.
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I think you are technically supposed to pay taxes an cash transactions too. I wouldn't be surprised if this is something they are working on.
Yeah technically that is the case, because as of now, you have to sell your cryptocurrency into fiat to buy things for most purchases. Therefore, it is a capital gain.
I think in the USA they're looking at a "fair tax law" for immunity with smaller purchases.
Once people are just trading crypto back and forth without changing to fiat, this muddies the waters a little, legally. If you have 1 BTC and you trade it as 1 BTC, and fiat isn't really a thing any more, it hasn't changed quantity, so is it a capital gain?