Famous financial company PWC has published a report on the cryptocurrency space. In the report, articles such as the relationship between the government and cryptos, crypto risks were mentioned. Here are the details…
PWC expects tax on cryptocurrencies
In 2022, an enhanced relationship between the government and the crypto industry began. A casual look at the industry shows that innovation in this field is driven by individuals and communities seeking a decentralized world free from “government interference.” However, a PWC report states that due to some of the “profitable and negative” things in crypto, governments will most likely use the tool of taxation in 2023. Specifically, he says, the government’s goal is to “control extremism.”
Starting with the world of Proof of Stake, PWC announced that “Ethereum Merge will bring greater focus on taxation of staking income worldwide.” This is because there will be more participants in the market who stake their assets for rewards, which means more profits in the market. PWC stated that taxation has always been a tool for profitable ventures. He noted that in an era of a new passive income model from decentralized assets built on blockchain, policymakers will not hesitate to take a share of the profits in staking.
There were hints of taxation in 2022
According to PWC, there were several preliminary steps taken to enable a full-blown taxation system for the crypto industry by 2022. The firm noted updates to the OECD’s CryptoAsset Reporting Framework (CARF) / and Common Reporting Standard (CRS), as well as tax reporting rules in the European Union (EU) DAC8 and the US. He pointed out that these regulations embody how taxation will work in this sector.
The report states that there is increasing interest in taxation for NFTs in 2022. Due to the structure and functioning of NFTs, the speed of development, and the unclear definition of NFTs, this subject; still a mystery to many regulators. PWC also noted that “there is an increasing trend towards platforms getting involved in buying or selling fully tax-responsible.” This trend shows that there are measures being taken to make clear decisions about what NFTs are and how their offerings should be taxed according to the market, creators and traders.
Will regulatory action be taken for DAOs?
Besides NFTs, DAOs and stablecoins have been other assets that the government has begun to pay more attention to. “Financial regulators have been exploring for some time how to implement regulation on decentralized systems and decentralized autonomous organizations (DAOs),” PWC said. As an example, PWC cited guidance from the Financial Action Task Force (FATF) and the U.S. Commodity Futures Trading Commission (CFTC) lawsuit against the Ooki DAO.
cryptocoin.com As we reported, the CFTC fined Ooki DAO $250,000 for offering illegal trade. In 2023, PWC said DAOs should expect broader regulation from government seeking to determine “who is responsible for tax reporting and compliance with such entities.”
Are stablecoins confusing?
Stablecoins are cryptocurrencies backed by various assets. While these assets can range from gold to fiat and other cryptocurrencies, the most popular ones are fiat-backed and preferred by users as they are more stable than regular cryptocurrencies. PWC noted that these assets blur the “tax and legal boundaries” between fiat (e.g. US dollars) and cryptocurrencies.
Therefore, a question that arose: Are investments in a US dollar-based stablecoin such as USDT the same as in USD bank deposits? With this situation, there is a need for regulations and legal principles that define how stablecoins are issued, controlled and taxed, according to PWC.
Conclusion: More regulation awaits cryptocurrencies
For governments around the world, the future of crypto will involve more regulation, according to PWC. A large part of this will be taxation, and 2023 will see several builds being developed and released. As the industry grew, “we’re starting to see more software solution companies trying to meet the growing need for tax reporting,” PWC said.