The International Monetary Fund (IMF) is the next government-affiliated organization seeking ways through which crypto tax payments can become a reality.
In a recent publication, the international organization announced its intention to seek a versatile plan through which crypto traders and users can be taxed. According to the IMF crypto action plan analysis, tens of billions of dollars are waiting for the government in crypto taxes.
They pointed out a loophole that the government isn't paying attention to. Apparently, the IMF is saying that the government has been overlooking some opportunities that would have presented the perfect taxation options for crypto users. But they did admit a challenge. The IMF acknowledged that the process of taxing crypto users could be incredibly challenging due to several reasons.
The International Monetary Fund (IMF) released a paper for publication called "taxing cryptocurrencies." The paper talks about the issue of cryptocurrencies and taxation from the government. It discussed the problems governments are facing with integrating cryptocurrencies into their tax system.
Rightly, the crypto industry is unlike traditional finance, which can easily fit into government authorizations. Since the original goal of crypto was to be disruptive of conventional finance, integrating them into what suits the government won't be easy.
The IMF explained why crypto has issues fitting into the government tax system. Before the introduction of cryptocurrencies, the tax system was already in place, and governments are now finding it hard to revamp the whole system to fit crypto.
The old taxation model might be a problem for the IMF, but crypto-intrinsic properties make it even harder.
Crypto Hard to Tax Due to its Characteristics
Cryptocurrencies have different properties, which differentiate them from other financial assets. First, a form of anonymity comes with their use, especially if you are doing so with a DeFi exchange.
The IMF termed crypto "semi-anonymous," and they claim it affects the government's ability to tax.
The organization also pointed out high volatility as another issue with tasking cryptos. The price of a crypto asset could be $200 this minute and turn to $50 the next minute. The IMF considers this a problem in calculating crypto tax.
"The greatest challenges are for implementation: crypto’s quasi-anonymity is an inherent obstacle to third-party reporting. Design problems arise from cryptocurrencies’ dual nature as investment assets and means of payment: more straightforward is a compelling case for corrective taxation of carbon-intensive mining. Ownership is highly concentrated at the top, but many crypto investors have only moderate incomes. The capital gains tax revenue at stake worldwide may be in the tens of billions of dollars, but the more profound risks may ultimately be for VAT/sales taxes," IMF wrote in their paper.
A Solution to Crypto Tax Issues
In their paper, the IMF also made some suggestions on how they think would be the solution to the issue of crypto taxation. In the IMF crypto action plan, distributed ledger technology is their main point for solving crypto taxation.
Government deploying the distributed ledger technology will enable them to trace back transactions and calculate taxes with the information.
The organization said, "The use of smart contracts (self-executing programs) within blockchains, for example, might in principle help secure chains of VAT compliance and enforce withholding."