By CNBCTV18.com IST (Published)
The crypto industry has often been regarded as the Wild West due to its lack of regulations. However, this is set to change with lawmakers worldwide looking to introduce stricter crypto rules and regulations. Most recently, officials from the G20, the EU, and the Portuguese government expressed their plans to usher in new guidelines to govern the operation and taxation of these digital assets. Let’s quickly run through these developments, beginning with the G20.
The G20 is a consortium of 20 countries, including China, the US, the UK, the European Union, India, South Korea, Brazil, etc. In April last year, the G20 commissioned the Organization for Economic Co-operation and Development (OECD) to develop a method to automate cryptocurrency tax reporting between nations. Yesterday, in response to this request, the OECD submitted two frameworks that aim to increase international crypto transparency among G20 countries.
These frameworks include the Crypto-Asset Reporting Framework (CARF) and an amended Common Reporting Standard (CRS). The CARF defines crypto assets and NFTs while also offering a plan for automatic international crypto tax reporting. On the other hand, the old CRS guidelines did not cover cryptocurrencies. This could lead to the use of cryptocurrencies for tax evasion. With this in mind, the CRS was amended to cover cryptocurrencies and Central Bank Digital Currencies (CBDCs).
“Today’s presentation of the new crypto-asset reporting framework and amendments to the Common Reporting Standard will ensure that the tax transparency architecture remains up-to-date and effective,” the OECD said in its official statement. The G20 committee will review these frameworks at their next meeting, which is set to be held between October 12 and October 13.
In a separate development, the EU passed a landmark crypto asset regulation bill last night. The bill – known as the Markets in Crypto Assets (MiCA) regulation bill – is now one step closer to being put into law. If passed in the next vote, it will bring stricter rules for crypto companies.
For starters, it will make the publication of a whitepaper compulsory for all new crypto projects. This whitepaper will contain all relevant information about the project and its workings. It will also make it mandatory for all stablecoin operators to maintain capital requirements at all times. Such projects will not be able to issue new tokens into circulation until and unless they are backed by an equal amount of the pegged currency (euros or other currencies used by EU member states).
The bill also clamps down on crypto mining and will require all mining firms to disclose their energy consumption regularly. According to Brian Fyre, an NFT and securities law professor at the University of Kentucky, MiCA could also classify NFTs as securities. This could see different rules and regulations apply to the digital asset class. The European Parliament will put MiCA to a vote for final approval later this month.
Alongside MiCA, the EU also passed an anti-money laundering bill. This bill will require crypto service providers to furnish transaction data to authorities in case of an ongoing investigation regarding money laundering, terrorist financing or other crypto crime.
Last but not least, Portugal is planning to impose taxes on crypto gains. The proposed policy is part of a 450-page macroeconomic strategy and fiscal report that could take effect after the 2023 national budget. It will result in 28 percent taxation on cryptocurrency gains made within one year. However, gains realized after holding the asset for more than one year will be exempt from such a tax.
This is a significant development for Portugal, a country known as a tax haven for crypto investors. It could drastically affect the country’s crypto economy and even cause an exodus of crypto companies and a lull in trading volumes like it did here in India.
Conclusion
While regulation may seem detrimental to the crypto industry, experts believe investors and companies should welcome it. “Regulations will come up, and they have to come up at some point, which would stabilize the market even further,” says Tally Greenberg, head of business development at Allnodes. “That protects investors, so it’s a good thing. It’s not a bad thing,” she added. However, some still oppose these frameworks, stating that they will hinder innovation and oppose the ethos of the crypto industry, which emphasizes decentralization at its core. How things actually unfold, only time will tell.
