Amid the market bullish trend, Taiwanese financial authorities have pledged to review tax regulations to address the country’s cryptocurrency tax evasion problem. However, local reports have indicated that regulators may face difficulties in implementing an effective tax framework related to digital assets.
Taiwanese authorities are reviewing tax laws
On Monday, Taiwan’s Ministry of Finance pledge To reconsider tax regulation regarding cryptocurrency gains amid the recent market rally. During a legislative hearing, Finance Minister Zhuang Zuiyun reportedly admitted that the agency has not yet implemented a system that effectively collects taxes related to digital assets from individuals.
Kuomintang MP Lai Shih-bao questioned the current regulations. Lai said cryptocurrencies are classified as digital assets in the country, which means investors who profit from trading them should not be exempt from income taxes.
Taiwan Tax Administration Director-General Sung Hsiu-ling explained that investors must file income taxes accordingly. However, Lai disputed this claim, as he suggested that Taiwanese investors would not feel the need to file their cryptocurrency tax reports if no authority has reviewed them.
At the hearing, Wu Lin-ying, director-general of the National Tax Office in Taipei, added that the current policy collects business and corporate income taxes from 26 cryptocurrency exchanges that have obtained anti-money laundering licenses from Taiwan’s Financial Supervision Commission (FSC). ).
According to a Focus Taiwan CNA report, Wu “struggled to provide clearer details on how income taxes are collected from investors who trade on these platforms.” Wu and Song also revealed that the Financial Services Commission is drafting a new tax law related to digital assets, but did not provide further details.
The FSC recently updated its regulatory framework to require stricter due diligence from cryptocurrency trading platforms. As reported by Bitcoinist, exchanges must closely monitor and review the listing and delisting of cryptocurrencies and put in place measures against illicit trading.
The new tax framework for cryptocurrencies may face challenges
According to the report, Chuang and Song pledged to review the current framework within the next three months to “enable the government to better tax crypto gains.” However, a legal expert familiar with cryptocurrencies told Focus Taiwan that current tax laws may pose challenges for financial authorities.
The individual income tax is only levied on income generated within Taiwan, as it follows the principle of territoriality. This means that if an investor receives income from informal trading of digital assets within the territory of the country, the gains will be classified as “income from real estate transactions.”
As a result, the principle of territoriality may make applying strict tax laws to cryptocurrency transactions more difficult, as individuals trading on offshore exchanges could evade scrutiny if their gains remain below the threshold for taxable offshore income, which is set at $230,000 for the fiscal year. 2024.
As far as I know, the Ministry of Finance can only monitor the flow of currency to bank accounts used for transactions, similar to the way it monitors stock trades. Taxes can be easily evaded by disguising transactions as offshore activity conducted in US dollars.
The Taiwanese source ultimately suggested that these regulations should be amended to address the problem of tax evasion and effectively collect cryptocurrency taxes from Taiwanese investors.
Total crypto market capitalization is at $3.03 trillion in the three-day chart. Source: TOTAL on TradingView
Featured image from Unsplash.com, chart from TradingView.com
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