How governments can benefit by imposing a range of taxes on cryptocurrency

in #taxation5 years ago (edited)

Mark Spitznagel (https://mises.org/blog/why-cryptocurrencies-will-never-be-safe-havens) has raised concerns about government regulation of cryptocurrencies.

I'm coming to the view that such regulation is not only necessary but will be extremely beneficial both for the market and for governments. [See my comments on that articl]

Some governments are already starting to regulate cryptos. Such regulations will massively increase the legitimacy of cryptos in the eyes of the sceptical masses, who will then jump on (finally) into the bandwagon, thereby massively increasing the price of these currencies.

Governments should get a share of the profits from cryptos to plough that money into infrastructure and public goods. It will only be a really stupid government that kills the chicken that lays a golden egg.

Having myself made a small paper profit (currently a notional profit of $4000 AUD on my small investment), I see no reason why government should not be able to apply the following taxes on crypto transactions:

CRYPTO-CRYPTO TRADES

The tax would need to be very small on tiny trades (such as for a cup of coffee), but it could be incrementally larger for larger trades.

A tax of up to 0.05 per cent on crypto trades will harvest significant gain for governments.

Of course, traders will then shop jurisdictions and move to exchanges in countries that do not charge such a tax. Or the exchanges will go off-line (peer-to-peer).

FIAT-CRYPTO-FIAT CONVERSIONS

Two choices:

a) at the standard GST rate (possibly at BOTH ends of the transaction).

b) as capital gains tax at the end of the transaction (this, of course, also would allow investors the option to track any capital losses).

What about the ability of crypto-owners to move their conversion to a different jurisdiction?

Yes, they can. For instance, a number of exchanges now offer USD debit cards that can be used anywhere in the world. So I can transfer funds to a US exchange, then convert to cryptocurrency, then buy a world-cruise from USA which will totally short-circuit the Australian system.

But if I wish to convert my crytpo-money into AUD (to be drawn as cash or deposited into my bank account), then generally only an Australian exchange will do so. The Australian government could require all Australian exchanges to charge a GST on such conversions. It could alternatively require me to track all my crypto investments and report on any capital gains.

Of course, there remains the option of peer-to-peer exchange in which I can find someone in Melbourne who wants bitcoin and get sell it to him in exchange for cash. This will be entirely off the record keeping system and will evade any tax.

It is not my job to think on behalf of governments about how they can tax cryptos. But this is clear: they can't avoid cryptos. These are here to stay. The only choice they have is to work out how to benefit from cryptos, which are essentially a great productivity enhancing device.

BTW, I agree with commentator Andrew Robbins here:

If a government starts to heavily regulate Cryptocurrencies they give themselves a massive disadvantage compared to other governments who don't. We're already starting to see this with ICOs preventing U.S. based IPs from participating. You do this too much, and people will eventually leave your country.

So, any government that regulates/ taxes will need to be keenly aware of competitive issues of this sort.

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Taxes are too high to begin with. Governments waste too much money. I'm against higher taxes on anything and everything.

The tax level in a society is a different question. That must be decided by representatives of the people.

The focus of this post is that governments start taxing the super-profits being made in crptocurrencies which should (in an ideal world) lead to lowering of other taxes.

Taxing and regulating cryptos will also boost their legitimacy and uptake, thereby increasing their price and attractiveness as investment.

Taxation is theft.

So are government benefits.

Disorder imposes costs. People have over the centuries voluntarily voted governments to power to regulate and bring order to their society. Undoubtedly this can be overdone (government failure), but let's not forget that there is a strong underlying basis of market demand that underpins the existence of governments.

So long as people jointly tax themselves through their representative bodies, tax is a self-imposed cost for the provision of public goods. It is not theft since you - through your representatives - vote on it.

With the first link, the chain is forged. The first speech censured, the first thought forbidden, the first freedom denied, chains us all irrevocably----Picard.

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Looks like Steemit does not have an option to edit one's posts. I need to, however, add relevant info. So here's one:
https://news.bitcoin.com/irs-crackdown-tracking-bitcoiners-with-chainalysis/

Australia is also planning to regulate cryptocurrency exchanges, which will provide more transparency and allocate more authority to the Australian Financial Intelligence Agency. - https://www.cryptocoinsnews.com/bitcoins-price-isnt-bubble/

The US Federal Elections Commission (FEC) issued its ruling approving the acceptance of Bitcoin as in-kind donations for political campaigns. As an in-kind donation, campaigns have 10 days to put the Bitcoin tokens raised into their official campaign depository.

In related developments, the FEC is assessing whether to amend its regulations on Bitcoin donations.

During their meeting in September 2016, the FEC commissioners have started their discussions on whether donations in the form of the virtual currency should be treated like cash. The agency has also announced that it will seek public comments on the issue once the proposed rulemaking is outlined. - https://cointelegraph.com/news/pro-bitcoin-us-congressional-candidate-starts-accepting-bitcoin-donations-for-2018

The tax fight has strengthened. http://fortune.com/2017/09/07/cryptocurrency-bitcoin-tax/

It is clear that some method has to be found to tax earnings, but expecting people to keep track of all their purchases and sales of cryptocurrency is very problematic.

Remember, all cryptocurrency is purchased from post-tax dollars in the first place. And it is very risky.

Only when very significant returns are involved should taxes kick in. Alternatively, the standard GST will capture all purchases and sales of real commodities.

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