Bitcoin, cryptocurrencies, or crypto assets are rapidly developing all across the globe, but they are not still incorporated fully in the traditional market. A lot of countries are still not willing to accept a new digital form of currency and financial system. A few countries have accepted it as a form of transaction, but the rules have not been set properly.
Cryptocurrencies and Bitcoin have evolved considerably from their inception in the 2000s. It is now one of the lucrative and most profitable types of financial investment. Digital currencies just took a decade to evolve to such a huge level. Of all, local bitcoin in Dubai the pioneers emerged on the global level in 2009.
Now there are thousands of other currencies, tokens, and altcoins that have been created like Ethereum, Ripple, Litecoin, and many more.
All of the digital assets use blockchain technology, which makes decentralization possible, which is the main aim of the virtual currencies, i.e., to take control out of one authority and put it in the hands of people. These currencies are not under the oversight of any party, authority, or bank.
Basically, the decentralization and obviously the digital (immaterial) nature makes it more difficult to tax and audit for the government agencies. Nonetheless, states all across the world are noticing the cryptocurrency growth and the enormous potential of tax returns that could be generated from the future financial system.
How to Make and Improve Taxation Policies in Relation to The Cryptocurrencies?
The tax policymakers are still grappling with the idea of digital currencies, and the regulations are at an early stage for detailed consideration of their implications. International organizations have been asked by a world leader to analyze the opportunities and, most importantly, risks posed by virtual assets. Up until now, the evasion implications and tax policy of these assets have been largely unexplored. But sooner, they will be part of the overall regulatory framework all over the world.
To improve the tax certainty for administrators and taxpayers, we need a regulatory and, of course, the legal framework for strengthening and taxing cryptocurrencies. To improve, we need to
- Provide clear, regularly updated guidance for taxation along with the legislative frameworks for crypto assets and digital currencies. It should also be consistent with the other assets treatment policies and should incorporate all the emerging areas.
- Support improved agreement and compliance via consideration of basic rules on valuation and exemption. We need to create thresholds for small, big, and occasional trading options.
- Align the taxation of bitcoin and digital currencies with other objectives of the policy. Such as the use of cash and environmental considerations (creation of digital currencies takes a lot of power, so we need to take into account the environmental factors).
- Develop apposite guidance related to tax for developments in digital assets and cryptocurrencies, including bitcoins. We need to include stable coins, a Central Bank for Digital Currencies. You need to incorporate Proof of Stake and decentralized finance (opposite to the traditional system).
Some Recommendations for Regulators to Create a Transparent Legislative Framework:
- We need to first see how we can make our existing system regulations can be adapted to the new system and we have to aware bitcoin legal in uae or not.
- What new taxation policies are required. List them down
- Consider all the possible taxation events that can be associated with digital assets and virtual currencies, i.e., creation, buying, selling, transferal, exchange, inheritance, theft, relevance, and exchange with fiat money, etc.
- Keep an eye on all emerging tokens, coins, and other currencies and define how different types of virtual assets will be treated.
- Set a rationale behind the taxation to make it more transparent.
- The taxation of digital assets should be consistent with other material assets to make compliance easier.
- To increase compliance, you could enhance the role of intermediaries because the transactions are fast and have different rates of exchanges, so it is difficult to keep track of all.
- Though bitcoin and other cryptocurrencies are profitable and people invest huge amounts in this area, there are people who have only limited investment amounts. Therefore, governments should provide some relaxation for seasonal and small traders. So they could also get a good return on their investment.
Taxation to digital currencies is necessary because it would help countries to prosper more, and also taxation would aid in avoiding financial crimes like money laundering. It is high time that the world creates a resilient and holistic approach towards cryptocurrencies.