10/07/23

FINTECH: IMF Says Tax Systems Need To Be Updated for Crypto Assets, Decentralized Exchanges Part of the Problem

As published on: dailyhodl.com, Monday 10 July, 2023.

The International Monetary Fund (IMF) says that global tax systems should be modernized to accommodate crypto assets.

In a new blog post, the IMF says the tax system needs updating to cope with crypto assets, whose anonymity and decentralized nature pose challenges to governments.

The bank says that in particular, tax evasion could be a significant problem if crypto is ever widely used as a currency for transactions.

“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.”

If most crypto activity is done through centralized exchanges, then the IMF says a lot of the threats of tax evasion are manageable, but decentralized exchanges (DEXs) present a different kind of problem for authorities.

“The problem is surmountable when people transact through centralized exchanges, since these can be made subject to standard ‘know your customer’ tracking rules, and possibly withholding taxes. Many countries are putting such rules in place with the expectation that tax compliance will improve…

A more troubling possibility is that reporting rules (and the failures of some crypto intermediaries) could induce people to transact increasingly through decentralized exchanges or directly through peer-to-peer trades where no central governing body oversees these transactions. Those are still extremely difficult for tax administrators to penetrate.”

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Fintech IMF Crypto