Crypto Tax Evasion Goes Global
Governments’ reluctance to recognize cryptocurrencies as a legitimate asset class, rather than mere “junk,” is a significant reason why cryptocurrency investors worldwide are unhappy about having to pay taxes for holding or transacting in digital assets.
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The Global Cryptocurrency Taxation Report 2022 has revealed that only a small number of cryptocurrency traders and investors report their digital assets to tax authorities and fulfill their tax obligations.
The report divulges that for 2022, the global average of cryptocurrency investors who have disclosed their digital asset activities and notified their local tax authorities stands at a mere 0.53%. It is noteworthy that instead of the conventional method of polling citizens, official data provided by various governments was employed to compile the report.
The study adopted a multifaceted approach to evaluating tax payments executed by cryptocurrency proprietors across diverse nations. The methodology encompassed employing official data retrieved from public government registries, analytical data, search query volumes, and obtainable information concerning cryptocurrency holders in every country.
All the information collected was organized and consolidated to determine the number of cryptocurrency investors who reported their activities to the appropriate tax authorities and fulfilled their tax obligations concerning their digital asset transactions.
The proportion of cryptocurrency investors who fulfilled their tax obligations on their digital asset transactions categorized by country. Source: Divly.
The results of the research revealed that the highest percentage of cryptocurrency investors who declared their digital assets and paid taxes were residents of Finland, with a rate of 4.09%. Australia came in second with a 3.65% rate. Following closely behind are Austria, Germany, United Kingdom, Norway, and Japan, with tax rates that range between 2.18% and 2.75%. Sweden is slightly behind these countries with a rate of 1.72% of digital asset owners complying with tax obligations.
In the United States, the country with the largest number of digital asset users, only 1.62% of investors declared their cryptocurrency to tax authorities, placing it 10th in the ranking. In neighboring Canada, the figure was 1.65%.
Citizens of the Philippines, Indonesia, India, Brazil, and Turkey paid the lowest taxes on their cryptocurrencies, with rates of 0.03%, 0.04%, 0.07%, 0.10%, and 0.18%, respectively.
The percentage of cryptocurrency investors who reported and paid taxes on their digital asset transactions, categorized by continent and worldwide. Source: Divly.
Several factors contribute to these findings. Primarily, they are related to the different legal statuses of cryptocurrencies in each country and the inadequate knowledge among the population about the necessity of disclosing their digital assets.
Government policies have a significant impact on global statistics. Central banks and governments view cryptocurrencies as a class of assets differently. While some countries regard them as commodities, others see them as a medium of exchange or goods. In contrast, certain countries ignore their existence or prohibit their use. Digital assets are only recognized as legal payment instruments by a few governments on par with local national currencies. This casual approach of most governments and central banks towards cryptocurrencies shapes the public's general perception that paying taxes on gains from assets that are not considered currency or valuable at the national level is unnecessary.
On the bright side, owning cryptocurrency doesn't always mean paying taxes – in most countries, only profits are taxed. However, 2022 was a “bearish” year – the value of all digital assets only dropped down, crypto investors' deposits in dollar terms suffered significant losses, and the overall market capitalization of the crypto market plummeted from $3 trillion in 2021 to $0.8 trillion in 2022. It seems tough out there, even if you're a crypto whale.
Crypto markets are currently trending in such a way that governments should be grateful for any taxes they receive. In the wake of bank failures and crypto exchange collapses, digital gold is moving towards cold wallets and decentralized marketplaces. This trend only seems to be gaining momentum.
Assets held in cold wallets are exceedingly challenging to include in financial reporting or track their movements, let alone monitor gains from them. Hence, governments around the world should scrutinize the Philippines, which has almost no tax compliance rate, since such practices could become the norm in the future.
Given that most governments consider cryptocurrencies as mere “junk” assets when compared to fiat currencies and precious metals like gold, silver, or platinum, one cannot help but question the rationality of taxing them. After all, taxing individuals on digital “air” assets seems ludicrous! It appears that those in power reap what they sow.
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