Israeli business newspaper Globes is reporting that the Israeli government is mulling the possibility of imposing a tax on profits from Bitcoin. The article states that the Israel Tax Authority is considering the move based on the idea that anyone who makes profits from Bitcoin owes taxes.
It was unclear how exactly a tax on Bitcoin profits would be levied, though, as Israel has yet to even recognize Bitcoin as an official currency.
Israeli Bitcoin exchange Bits of Gold’s CEO, Jonathan Rouach, suggests the tax authority is not prepared for the necessary paradigm shift to even know where to impose taxes.
“They still need to know what bank account they can levy taxes from,” he said.
Bits of Gold, for its part, signed a partnership with Global Money Transfer in July to allow customers to purchase Bitcoins at local exchange bureaus. This allows Bits of Gold to stay compliant with state regulations.
Others have argued that a state’s imposition of a tax could go a long way toward further legitimizing the cryptocurrency. The questions is still begged, though, how any national tax agency can claim jurisdiction over an unregulated, decentralized currency.
Israel thus far has not taken a clear stance on Bitcoin. Some banks have limited or refused payments in Bitcoin outright. In June, many banks began to limit transactions between Israeli residents and known Bitcoin accounts.
One Israeli account-holder reported on the Bitcoin Forum that his/her bank sent a warning about transactions with Mt. Gox, noting that the bank was unwilling to take on the risk of dealing with a digital currency “until guidance/clarifications are issued by the Israel Central Bank.”
The Israel Bar Association, on the other hand, suggested back in August that Bitcoin was catching on as a legitimate way to pay lawyers for their services.
Israeli retailers have also begun to accept the currency, while exchanges such as bit2c.co.il and bitgo.co.il are keeping the market liquid and Bitcoins readily accessible.
Without a clear stance, though, Israel might be stuck with a lot of potential and no outlet for it. Instead, early restraints such as the nebulous threat of taxation could stifle development.
Ron Gross, founder of Tel Aviv-based BitBlu, says commercial banks need to “let go of [their] fear of progress and start innovating in regards to Bitcoin.”
“Simply not blocking transactions would be a great start,” he added.