TAXATION OF DIGITAL CURRENCIES
It need not be emphasized further, that in modern economies, taxes are the most important source of governmental revenue. In the United Kingdom, the government raises around £800 billion a year in receipts – income from taxes and other sources, equivalent to around 37 per cent of the size of the UK economy, as measured by GDP.[9] China on the other hand was reported to have generated about 129.386 USD Billion in December, 2021. Nigeria, as of 2021, generated about N3.93 trillion, being 73 per cent of its targeted N7.9 trillion. However, these taxes as recorded by various countries did not include any proceeds from Digital currencies, which based on statistics, have contributed to over billions of dollars in the status of the global economy.
It is pertinent to state that Crypto-assets, and Virtual currencies, in particular, are in rapid development and tax policymakers are still at an early stage in considering their implications. This has resulted in the different reactions and approaches, deployed in dealing with this disruptive technology by various nations. According to a 2021 summary report by the Law Library of Congress, countries like China, Egypt, Qatar, Nigeria, and so on, have implicitly banned Digital currencies by putting restrictions on the ability of banks to deal with Crypto, or prohibiting Cryptocurrency exchanges. They observed that Cryptocurrencies are being used to funnel money to illegal sources, and argued that the rise of Crypto could destabilize their financial systems.[10]
On the other hand, countries like the US, Canada, Australia, and so on have welcomed Digital currencies with open arms, while introducing regulations under their country’s anti-money laundering and counter-financing of terrorism laws (AML/CFT), in attempts to reduce its use for these purposes. It is their opinion that decentralized Digital currencies like Bitcoin, should be viewed as a commodity for income tax purposes. This means any income from a transaction using Bitcoin is viewed as business income, or a capital gain, and must be reported as such.
In the United States, the Internal Revenue Service addressed the taxation of Cryptocurrency transactions in Notice 2014-21,[11] which provided that general tax principles applicable to property transactions, apply to transactions using digital currency. Therefore, a taxpayer who receives Virtual currency as a payment for goods or services, must include in its gross income, the fair market value of the Digital currency measured in U.S. dollars, as of the date that Virtual currency was received.[12]
For Coin-To-Coin trades, given the IRS’s treatment of Cryptocurrency as property, Cryptocurrency trades are subject to the same capital gains and losses rules as all other property exchanges. According to Notice 2014-21, where Cryptocurrencies are used as a means of payment for goods and services, such payments are subject to income tax and self-employment tax, and must be reported on Form 1099; and the fair market value of the Cryptocurrency establishes the taxable amount.[13]
India on its path, has embraced the taxation of Digital currency by including provisions on it in the Finance Bill 2022. It is the law that Virtual Digital Assets (VDAs) will be taxed at 30%. VDAs mainly include cryptocurrencies, non-fungible tokens (NFT) and so on.[14]