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Insight by: Robin Singh, CEO of Koinly
Cryptocurrency might be the first tax mechanism governments utilize when seeking additional revenue, as Brazil’s recent action suggests.
In June, Brazil abolished its tax exemption for minor crypto profits and instituted a fixed 17.5% tax on all capital gains from digital assets, regardless of the amount. This decision was part of a larger initiative by the Brazilian government to enhance revenue through heightened taxation of financial markets.
This goes beyond a mere local tax adjustment. A distinct pattern is surfacing where governments are discovering methods to extract more tax from this asset class. Globally, policymakers are reevaluating crypto as a revenue prospect.
A worldwide trend is starting to take shape
Just in 2023, Portugal imposed a 28% tax on crypto gains held for under a year, a considerable shift for a nation that had long regarded crypto as tax-exempt.
The pressing inquiry now is how long countries with crypto-friendly tax systems can maintain their stance before conforming, and which will be the next to tighten regulations.
For instance, Germany presently exempts crypto gains from capital gains tax if the assets are retained for more than one year. Even for assets held for under a year, gains of up to 600 euros ($686) annually are still tax-exempt.
In contrast, the United Kingdom offers a wider 3,000 pounds ($3,976) capital gains tax-free allowance on all assets, inclusive of crypto, although this figure was reduced by 50% from 6,000 pounds in 2023, indicating potential further reductions ahead.
Retail investor gray area nearing an end
Though it may appear to be a minor adjustment, further lowering the 3,000-pound threshold could yield substantial tax revenue, especially with recent Financial Conduct Authority (FCA) data indicating that 12% of UK adults currently own crypto.
It’s challenging to believe that this possibility is entirely off the table, particularly as UK government debt escalates.
The period of retail crypto investors benefiting from a gray area of regulatory lenience is drawing to a close. As the crypto market matures and prices keep rising, governments are noticing the media coverage surrounding crypto’s rapid growth.
This is notably the case in emerging markets, where governments face escalating pressure to address budget deficits without provoking political backlash from more apparent or controversial tax increases.
No other asset rivals Bitcoin’s average annualized return of 61.2% over the past five years.
Crypto makes for an easy target for governments
Fortunately, crypto presents a relatively straightforward tax target for governments. It’s frequently viewed as risky, speculative, and mainly beneficial to the affluent. While taxing it isn’t as contentious among the public, it does carry drawbacks, especially for everyday investors and startups.
Related: Japan’s crypto tax reform: Essential knowledge for investors in 2025
For instance, Brazil’s 17.5% structure disproportionately affects smaller traders.
While large institutions can absorb these costs or shift to regions with more favorable regulations, everyday users, including those utilizing crypto for savings in inflation-affected economies, bear the burden.
With the rising likelihood that other governments will emulate Brazil and Portugal’s actions, the era of low-tax or tax-exempt crypto investing may be nearing its conclusion.
The inquiry isn’t whether other crypto-friendly nations will tighten their hold on crypto taxation; it’s how swift and severe that will be.
Insight by: Robin Singh, CEO of Koinly.
This article is for informational purposes only and should not be construed as legal or investment advice. The opinions and viewpoints expressed here are solely those of the author and do not necessarily reflect or represent the views of Cointelegraph.
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