Not wanting to reduce tax revenues, many countries are now actively considering what should be done about cryptocurrencies (CCs) and at least to some extent they think they need to control this market space to protect consumers. Considering that there are cases of hacking and theft and such scandals and incidents, consumer protection is being considered at this level. Other countries have similar regulatory bodies and most of them are working by failing to create proper regulations and perhaps the “rules” will be in place for years to come, as governments discover what works well and what doesn’t. Some of the advantages of CCs are that they are not regulated by any government or central bank, so how much control and control the government will impose can be an interesting tug-of-war for many years to come.
The biggest concern for most governments is the imposition of taxes on profits in the CC market space. The central question being addressed is whether CC should be considered as an investment or as a currency. So far most governments have tended to consider CC as an investment, like other products where profits are made using the Capital Gains model. Some governments see the CC only as a currency that fluctuates in daily relative prices and they will use tax rules like foreign exchange investments and transactions. It is interesting to note that Germany has forgotten the fence here, deciding that CC used directly for the purchase of goods or services is not taxable. It seems a bit chaotic and ineffective if all of our investment profits could become non-taxable if we use them directly to buy something – say a new car – every so often. Perhaps Germany will tune their policy or rethink it as they move forward.
Although there is no regular foreign law requiring CC exchanges to report CC transactions to the government, it is more difficult for governments to enforce tax rules. The global and distributed nature of the CC Marketplace makes it almost impossible for any one nation to know all the transactions of their citizens. Tax evasion has already occurred, as several countries provide global banking services that are often used as tax havens, sheltering funds from taxes. There Sisira of nature was born in a state of petty control and control by the government and it has both ups and downs. It will take time for governments to do all this by trial and error – it’s still all new and that’s why we call CC and blockchain technology “game changers.”