Would Bitcoin enhance taxing and provide more effective ways for governments to make citizens accountable, or would it create a hole for users of the currency to evade tax?
Cointelegraph asked experts how Bitcoin could affect certain government and societal processes such as taxation.
The pro-Bitcoin divide will be quick to tell how the cryptocurrency will positively revolutionise the associated processes, while those against will always tend to point out the deficiencies and possible pitfalls of Bitcoin and its associated technology, the Blockchain.
Bitcoin has multiple definitions
“I think something many people find puzzling, especially when they are new to Bitcoin, is that Bitcoin has multiple definitions depending on your jurisdiction.”
Vogel says that the basic questions anyone new to Bitcoin asks are “Is Bitcoin a currency or a commodity?” and “Are Bitcoin transactions subject to tax in your area?”
Vogel tells Cointelegraph:
“In terms of VAT/GST (sales taxes), Bitcoin actually provides the potential for automated tax remittances. In general, retail businesses keep track of their monthly transactions, and then remit sales taxes due at the end of the month. Using a form of smart contract, perhaps via a Bitcoin payment gateway, sales taxes could be remitted to governments in real time. This provides a direct benefit to government over cash, which is often a massive grey area for off-balance sheet transactions where tax is rarely collected.”
It all boils down to proper regulation
Lazarichev says that Bitcoin being a conceptually new type of money has significantly changed our mindset. He explains that there has been a solid taxation system, especially in developed countries, where bank statements, income, expenses and exchange rates act as fundamentals for taxation regimes.
He tells Cointelegraph:
“Obviously some people, so called the underbanked population, are not happy with such control from the tax authorities and prefer operating via impersonal cash. Would Bitcoin serve this Underbanked population well? Probably yes. However, there are not many benefits for them in it, because Bitcoin is much more traceable than banknotes.”
Lazarichev maintains that overall, while the tax authorities are figuring out how to identify the beneficiaries of the Bitcoin transactions to apply certain taxes, Bitcoin might attract some people who are very interested in decreasing their tax payments. But once the proper regulation is in place, there is not much left for the tax optimization.
Current mechanisms cannot fight tax evasion
Cvijovic Nikola, CTO at EC District, retains an opinion which prevails upon the current developments surrounding Bitcoin. Nikola says that at the moment traditional mechanisms used to fight tax evasion are not capable of addressing Bitcoin-based tax evasion because they are outdated.
“Bitcoin has no jurisdiction - it operates in an online world, it is anonymous and uses no intermediaries. These are three key points for determining tax liability. Of course, you can regulate Bitcoin exchanges and trading companies, but as Bitcoin becomes widely accepted, people will be able to live entirely on Bitcoin which will, to a great extent, eliminate the need for exchanges, thus making taxation even harder.”
Nikola concludes by saying that Bitcoin is gradually eliminating the concept of taxation, probably heading to a concept of taxation on a voluntary basis.