Countries With Highest And Lowest Cryptocurrency Tax

For thousands of cryptocurrency investors in India, Union Budget 2022-23 has brought both cheer and disappointment. Investors are happy because uncertainties related to legality of cryptocurrency transactions has been eliminated. This is a huge relief, as earlier the government had proposed to ban cryptocurrency trading. It had led to panic selling and several cryptocurrencies had reported drop in their valuation.

By imposing tax on digital assets (cryptocurrencies and Non-Fungible Tokens (NFTs), the government is sending a clear message that cryptocurrencytransactions are now fully legal.

The government will also launch its own digital currency known as Central Bank Digital Currency (CBDC). This will be based on blockchain and other technologies, just like other cryptocurrencies. Digital Rupee will debut in 2022-23 and will aim at mass scale circulation. It will be issued by the Reserve Bank of India (RBI).

Why cryptocurrency investors are still unhappy?

High tax rate of 30% – Even though cryptocurrency trading has been officially legalized by the government, not everyone seems to be happy. That’s primarily because the government has imposed tax of 30% on income derived from trading of virtual digital assets. This is quite high, at around the same level as tax imposed on things like lottery, horse racing, gambling, etc.

By imposing a high tax rate, the government may actually be dissuading people from investing in virtual digital assets. Tax rate of 30% is much higher in comparison to traditional investment options such as equity, mutual funds, real estate, etc. The high tax rate may prompt people to invest their money via international trading platforms. This in turn will limit government’s tax revenue.

1% TDS – Another thing troubling investors is that 1% TDS will be charged for every transfer of virtual digital asset. This may not be much of a problem for long-term investors. But it will surely be quite expensive for intra-day traders in India.

Other cryptocurrency rules framed by the government seem okay. For example, loss from digital assets cannot be set off against any other income. Digital assets gifted to any person will be taxed in the hands of the recipient.

While 30% tax on cryptocurrency is certainly high, it is at least better than having completely banned trading in cryptocurrencies. Countries like China, Bangladesh, Morocco, Oman, Tunisia, Algeria, Qutar, Iraq and Egypt have imposed a blanket ban on cryptocurrencies.

Talking about tax rates on cryptocurrency, it varies from country to country. Here’s a quick overview.

Countries with high cryptocurrency tax

  • USA – In United States, cryptocurrency is treated as capital gains and taxed accordingly. Short term capital gain is taxed in the range of 10% to 37% whereas long term gains are taxed in the range of 0-20%.
  • UK – If you are a basic rate taxpayer, you will have to pay 10% tax on cryptocurrency transactions. For higher and additional rate taxpayers, tax is charged at 20%.
  • Netherlands – Tax rate in this country varies based on taxpayers’ income and profile. In case of cryptocurrency, the highest possible tax rate is 31%.
  • Australia – In this country, crypto transactions are treated as capital gains. For capital gains of more than 12 months, the tax rate is 50%.
  • Canada – Crypto assets are treated as commodity. Highest applicable tax rate on crypto assets is 33%.

Countries with lowest cryptocurrency tax

Some countries are a lot more lenient when it comes to imposing tax on crypto transactions. Countries with nil or lowest crypto tax rates include Germany, Switzerland, Portugal, Singapore, Cyprus, Malta, Malaysia, and Bermuda.

Will crypto tax reduce in India in future?

Although 30% tax rate on cryptocurrencies is high, experts believe that it may not remain like this forever. Tax rates have been continually revised in India and it would apply to cryptocurrencies as well.

The government may be taking a hard step initially to ascertain how things work out. This is something entirely new, so it makes sense to be cautious during initial stages. As more data is generated and crypto’s impact on economy is better understood, the tax rate may be revised.

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