In the midst of the market’s upward momentum, Taiwanese financial officials committed to reassessing tax regulations to address the nation’s issue of cryptocurrency tax evasion. Nonetheless, local reports indicated that the regulators may encounter challenges in enforcing an effective tax framework related to digital assets.
Taiwanese Officials To Reassess Tax Regulations
On Monday, Taiwan’s Ministry of Finance committed to revisiting the tax regulations concerning crypto earnings amidst the recent market surge. During a legislative session, Finance Minister Chuang Tsui-yun reportedly acknowledged that the agency has not yet established a system that effectively gathers taxes related to digital assets from individuals.
Kuomintang legislator Lai Shyh-bao questioned the existing regulations. Lai contended that cryptocurrencies are categorized as digital assets in the nation, implying that traders profiting from their exchanges should not be exempt from income taxes.
Taiwan’s Director-General of the Taxation Administration, Sung Hsiu-ling, clarified that investors are required to file income taxes accordingly. However, Lai countered this assertion, suggesting that Taiwanese investors may not feel compelled to file their crypto tax reports if no oversight is conducted by authorities.
During the hearing, Wu Lien-ying, the Director-General of the National Taxation Bureau of Taipei, mentioned that the current regulations collect business and corporate income taxes from 26 crypto exchanges that have acquired anti-money laundering licenses from Taiwan’s Financial Supervisory Commission (FSC).
According to a report from Focus Taiwan CNA, Wu “struggled to offer clearer information on how income taxes are assessed from traders using these platforms.” Wu and Sung also disclosed that the FSC is in the process of drafting a new tax law related to digital assets but did not provide further specifics.
The FSC has recently revised its regulatory framework to impose stricter due diligence requirements on crypto trading platforms. As reported by Bitcoinist, exchanges must thoroughly monitor and evaluate the listing and delisting of cryptocurrencies and establish strategies against illicit trading.
A New Crypto Tax Framework May Encounter Hurdles
According to the report, Chuang and Sung pledged to examine the existing framework over the next three months to “better enable the government to tax cryptocurrency profits.” However, a legal expert knowledgeable about cryptocurrencies informed Focus Taiwan that the current tax regulations might present difficulties for the financial authorities.
Individual income tax applies only to income earned within Taiwan, adhering to the principle of territoriality. This indicates that if an investor derives income from non-regular trading of digital assets within the nation, the profits will be classified as “income from property transactions.”
Consequently, the principle of territoriality could complicate the enforcement of strict tax regulations on crypto transactions, as individuals engaging in trading on foreign exchanges might evade scrutiny if their profits remain below the threshold for taxable overseas income, which has been set at $230,000 for the 2024 fiscal year.
To the best of my knowledge, the Finance Ministry can only observe the flow of funds in bank accounts utilized for transactions, similar to its oversight of stock trades. Taxes can easily be avoided by classifying the transactions as overseas activities conducted in U.S. dollars.
A source from Focus Taiwan ultimately suggested that these regulations must be revised in order to effectively tackle the issue of tax evasion and accurately collect crypto 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
