Perspective by: Robin Singh, CEO of Koinly
If Brazil’s recent action is any indication, cryptocurrencies may be the initial tax mechanism governments utilize when in need of increased revenue.
In June, Brazil abolished its tax exemption for minor crypto profits and instituted a flat tax rate of 17.5% on all capital gains from digital assets, regardless of their size. This move formed part of a larger initiative by the Brazilian administration to enhance revenue through amplified taxation of financial markets.
This adjustment transcends a mere local tax modification. A distinct trend is surfacing wherein governments are uncovering methods to reap more tax from this asset class. Globally, policymakers are reassessing cryptocurrencies as a promising revenue source.
A global trend is starting to take shape
Only in 2023 did Portugal implement a 28% tax on crypto profits held for under a year, marking a considerable shift for a nation that had previously treated crypto as tax-exempt.
The pressing question is how long nations with crypto-friendly taxation policies can maintain their current stance before following suit, and which country will be next to impose stricter regulations.
Germany, for instance, currently allows tax-free capital gains for crypto assets held longer than one year. For assets held for less than a year, gains up to 600 euros ($686) annually remain exempt from tax.
In contrast, the United Kingdom provides a more extensive capital gains tax allowance of 3,000 pounds ($3,976) on all assets, including crypto, although that limit was reduced by 50% from 6,000 pounds in 2023, hinting at potential further reductions ahead.
The gray zone for retail investors is diminishing
While it may appear to be a minor modification, further decreasing the 3,000-pound limit could yield significant tax income, particularly given recent data from the Financial Conduct Authority (FCA) indicating that 12% of UK adults now own crypto.
It’s challenging to envision such changes being completely off the table, especially with rising government debt in the UK.
The period of retail crypto investors enjoying a gray area of regulatory leniency is coming to an end. As the crypto market evolves and prices continue to rise, governments are noticing the media coverage highlighting the sector’s explosive expansion.
This reality is particularly evident in emerging markets, where governments face increasing pressure to fill budget deficits without triggering political backlash from more apparent or contentious tax increases.
No other asset matches Bitcoin’s average annualized return of 61.2% over the previous five years.
Crypto is an appealing target for governments
Fortunately, crypto presents a relatively easier taxation target for governments. It is often regarded as risky, speculative, and mainly perceived as benefitting the affluent. While imposing taxes on it isn’t seen as particularly controversial by the public, it does have drawbacks, especially for everyday investors and startups.
Related: Japan’s crypto tax overhaul: What investors should be aware of in 2025
For instance, Brazil’s 17.5% tax structure has disproportionately impacted small traders.
While large institutions can absorb these costs or relocate to regions with friendlier regulations, everyday users, including those using crypto for savings in economies vulnerable to inflation, are the ones shouldering the burden.
With the growing likelihood that other governments will emulate Brazil and Portugal’s actions, the era of low-tax or tax-free crypto investment may be drawing to a close.
The real concern isn’t whether other crypto-friendly countries will tighten their grip on crypto taxation; it’s how swiftly and severely they will do so.
Perspective by: Robin Singh, CEO of Koinly.
This article is intended for general informational purposes and is not designated to serve as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.
