Taxing Cryptocurrencies

IMF Working Papers, July 5, 2023

Source details

Paper reviews issues that arise as policymakers attempt to accommodate cryptocurrencies within tax systems not designed to handle them.
Authors: Katherine Baer, Ruud A. de Mooij, Shafik Hebous, Michael Keen.
Date: July 5, 2023.

The greatest challenges are for implementation: crypto’s quasi-anonymity is an inherent obstacle to third-party reporting.
Design problems arise from cryptocurrencies’ dual nature as investment assets and means of payment.
There is a compelling case for corrective taxation of carbon-intensive mining.
Ownership is highly concentrated at the top, but many crypto investors have only moderate incomes.
The capital gains tax revenue at stake worldwide may be in the tens of billions of dollars.
More profound risks may ultimately be for VAT/sales taxes.

Strengthen implementation measures that address quasi-anonymity and the lack of third-party reporting.
Consider tax design that reflects cryptocurrencies’ dual nature as both investment assets and means of payment.
Implement corrective taxation targeting carbon-intensive mining activities.
Monitor distributional implications given concentration of ownership alongside moderate-income participation.
Evaluate VAT/sales tax frameworks for vulnerabilities posed by crypto-based transactions.

Quasi-anonymity of crypto transactions impedes conventional third-party reporting mechanisms.
Distinguishing between use as an investment asset versus use as a means of payment creates tax design complexities.
Carbon-intensive mining presents a clearer and more straightforward basis for corrective taxation compared with other crypto tax measures.