Derek Andersen3 hours agoIMF eyes tens of billions in crypto asset taxes, has few suggestions for collecting themIncome tax, property tax, VAT, corrective taxation — there is a tax goldmine out there for governments, but they will have to think hard about accessing it.2813 Total views1 Total sharesListen to article 0:00NewsJoin us on social networksGovernments have yet to address all the ways crypto might be taxed, the International Monetary Fund (IMF) has realized, and the amount of taxes not imposed or collected may reach well into the tens of billions of dollars. That insight does little to reduce the variety of challenges in taxing crypto, however.

Crypto’s “semi-anonymity,” its dual nature as an investment vehicle and a means of payment, and its high volatility complicate the tax collectors’ task beyond their current abilities, a new IMF working paper said. There is no consensus yet even on how to tax cryptocurrency —  as income, capital gains (which is most common) or gambling — and it doesn’t help that tax systems were designed before the emergence of blockchain technology, which has spun out a range of assets that needs separate treatment.

The paper noted that crypto is not an especially effective means for tax evasion due to its high fees and volatility. However, if the potential for crypto tax collection could be harnessed, “corrective” taxation could help offset the undesired influence of crypto on macroeconomic factors, as well as further ecology goals. The paper noted that green taxation is being explored, but more mechanisms must be considered.

The paper cited research monitoring crypto transactions relative to statements by tax authorities in the United States. It showed that the market does respond to tax authorities’ guidance, sometimes indicating new attempts at evasion.

Related: Kraken ordered by court to disclose user data to IRS for tax compliance

There is “relatively little analytical work or empirical evidence to draw on” even though the “vast amounts of data are in principle available on transactions in cryptocurrencies,” the IMF said. The popularity of crypto in emerging economies, where collection technology may be limited, is another drawback, although even when crypto is seized, such as by the U.S. Federal Bureau of Investigation, the method for doing so is left unclear.“Policymakers are struggling to accommodate cryptocurrencies within tax systems not designed to handle them; this paper reviews the issues that arise.

The greatest challenges are for implementation: crypto’s quasi-anonymity is an inherent obstacle to third-party reporting.”… pic.twitter.com/qTCo6jnL6I— Joshua Rosenberg (@_jrosenberg) July 5, 2023

Furthermore, the crypto market is split between whales and small holders, which may also require separate treatment. Proper tax design is crucial. A flat-rate tax could be imposed on anonymous transactions, for example. The challenge is not anonymity, but technology:“What impedes its anonymous implementation in the blockchain case is an inability of the tax authorities to insert themselves into the chain.”

The desire to solve these problems is also an issue:“The distributed ledger technology […] might ultimately prove valuable for tax administration; and the use of smart contracts (self-executing programs) within blockchains, for example, might in principle help secure chains of VAT compliance and enforce withholding.”

Centralized exchanges could present more opportunities than decentralized exchanges to police for tax compliance, the paper noted, although work would have to be done to implement it. Mandatory Anti-Money Laundering and Know Your Customer measures would be inadequate for tax reporting purposes, it claimed.

Greater reporting requirements for crypto miners would be one starting point for increasing tax compliance, the IMF said. Sales and value-added taxation have been little considered and are a tangle of inconsistencies in regard to crypto.

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