The International Monetary Fund (IMF) has emphasized the potential for generating value-added taxes (VAT) and income tax from crypto assets, stating that countries like Nigeria could have benefited from significant tax revenue if a 20% tax was imposed on capital gains during the soaring prices of 2021. The IMF estimated that worldwide tax revenue could have reached $100 billion in that year alone.

In a report titled “Crypto Poses Significant Tax Problems—and They Could Get Worse,” sent on Wednesday, the IMF stressed the importance of addressing the tax challenges associated with crypto assets to prevent revenue leakage and safeguard the integrity of tax systems.

The cryptocurrency market witnessed a boom in 2021, with major assets like Bitcoin surging to nearly $70,000 from a value of $200 a decade ago, only to decline to around $29,000 more recently.

The IMF highlighted the classification issue of crypto assets, whether as property or currency, and suggested that capital gains should be subject to taxation when a crypto asset is sold for profit. Additionally, the report proposed collecting VAT when crypto assets are used for purchases.

While the IMF estimated that global tax revenue from taxing crypto assets could have reached $100 billion in 2021, it acknowledged that the decline in cryptocurrency market valuations over the past two years would result in combined tax revenue of approximately $25 billion annually.

The IMF’s report disclosed the potential financial benefits for governments in the cryptocurrency market and the loss incurred thus far. It stated, “Crude estimates suggest that a 20 percent tax on capital gains from crypto would have raised about $100 billion worldwide amid soaring prices in 2021. That is about 4 percent of global corporate income tax revenues, or 0.4 percent of total tax collection.”

“There is also VAT. Crypto transactions have similarities to those in cash in their potential for being hidden from tax administrations. Today, the share of purchases made with crypto is still small.

“But widespread use, if tax systems were not prepared, could someday mean widespread evasion of VAT and sales taxes, leading to materially lower government revenues. This may be the biggest threat from crypto,” IMF noted in the report.

The report also addressed the challenge of pseudonymity in the crypto industry, which hinders governments’ ability to properly tax cryptocurrency holders. The IMF noted that approximately 10,000 individuals hold a quarter of all Bitcoin, and their pseudonymous nature enables them to evade tax payments.

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