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Wednesday, October 4, 2023

Need to update tax systems for crypto assets: IMF document

Tax systems need to be upgraded to deal with crypto assets, whose anonymity and decentralized nature pose challenges, most notably for value-added tax, says an IMF. paper. He also warns that cryptocurrencies pose significant fiscal problems and could get worse.

“Given the complexity of the fundamental challenges posed by the pseudonym, the speed of innovation, the large information gaps, and the uncertainties that lie ahead, the tide is yet to turn in the battle to properly incorporate cryptocurrencies into the broader tax. system. Some of the elements required to do so, such as clarity in its classification for tax purposes, are clear,” says an IMF working paper written by Katherine Baer, ​​Ruud de Mooij, Shafik Hebous, and Michael Keen.
The document says the challenges are “fundamental, and the risks, particularly for VAT and sales tax, may be greater than people recognise. “As many (though not all) governments are beginning to realize, policymakers need to develop clear, consistent, and effective frameworks for taxing cryptocurrencies,” he adds.

The authors say the most fundamental difficulty with taxing crypto assets is that they are “pseudonymous.” That is, the transactions use public addresses that are extremely difficult to link to individuals or companies. This can facilitate tax evasion. Therefore, implementation is at the heart of the matter for tax authorities, he said.
Views expressed in IMF working papers are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or management.
Global agencies are developing a framework on crypto assets and Indian authorities want three key issues to be addressed, including the need to address macroeconomic and financial stability risks and investor protection and education, while ensuring that technological innovation is not affected.

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