Israel considerations about cryptocurrency: currency or property
March 2, 2018 by Janhavi Arora
The Israeli Tax Authority (ITA) confirmed on February 19, 2018, in a professional circular that the country will tax cryptocurrency as a property, not a currency. The draft released by the tax authority on January 12 said that “these currencies will be considered as ‘assets’ and will be sold as a ‘sale’ and the proceeds from their sale will be classified as capital income.”
After years of uncertainty regarding cryptocurrency transactions and holdings on their tax statements, finally, the Israel government have reached this conclusion. Bitcoin, Litecoin and other virtual currencies will be taxed from now. The tax authorities have hinted that cryptocurrencies are not the same as fiat money but can be categorized as property.The authorities explained that they are doing so after receiving repeated questions from the cryptocurrency users community in Israel. The tax authority explained that the cryptocurrency is not a currency, rather is an asset. It also added that it is not like a financial security just like a stock. Unfortunately, it seems to be bit harsh and prohibitive to the users.
Although, this determination has a number of legal repercussions. Firstly, if a company receives a payment in terms of bitcoin, it cannot write down the transaction as receiving a payment.Instead, it needs to be added as barter and classified accordingly. The result is obvious. The companies need to do a lot of extra paperwork that first used to accept cryptocurrencies as a payment.Another disadvantage of this determination is that the individual users will have to pay the Israeli capital gains tax, currently which is 25% every time they sell a bitcoin. Lastly, anyone who is working at mining bitcoin or trading marketing will be taxed as a business which will have to pay corporate income tax and ultimately will have to charge 17% VAT from the clients.Some parts of the notice read said that “
A person whose income from the sale of tokens reaches the level of a business, his income will be classified as a business income and it will be subject to tax rates under sections 121 or 126 of the ordinance”The Israel tax authority understands that providing a record of cryptocurrency trading could be difficult.Therefore, to prove such transactions it demands several documents such as a letter of clarification, bank statement about the purchases and screenshot of the computer when a transaction takes place.The Israeli government has been looking for ways to tax cryptocurrencies since 2013. While authorities have officially made the announcement, the story doesn’t end here, the officials are still trying to formulate laws that would continue to have either a positive or negative impact on the Israeli crypto space.The heavy-handed taxation on the ICO ’s, bitcoin and altcoins might be a strategy to chase away bitcoin investors from the middle eastern country so that the proposed crypto shakel would have the nation all to itself.
Over the past year and a half Bitcoin has been on a spectacular run, rising in value 140% in 2016 and now an additional 49% in just the past month.This surge in value has convinced the people that it is a more credible currency.Yet the wild swings, both up and down, in the value of Bitcoin, do not make it a more plausible substitute currency; they make it a speculative asset, a get-rich-quick scheme.
REASONS WHY IT IS AN ASSET
The most important feature of a currency is that it be a stable store of value. Researchers say that “ a stable currency value is a key to investment because those who invest are expecting a stream of future earnings to earn back their investment plus some profit”Instability in currency values mean that an investor cannot accurately predict the value of those future earnings. This uncertainty makes investments less valuable; thus, less investment happens.
The value of bitcoin has experienced a daily change of 2% in value over the past months, sometimes down but mostly up.We know that bitcoin’s value is never stable. It generally changes every day. There is no stability and no expectations. Anything can happen. Therefore, people don’t want investments or debts denominated in a currency whose value can change by 50% in a month.Therefore it can’t be labelled as a currency.
2. TRANSACTION PROCESSING IS TOO SLOW
Another basic feature of currency is its ability to facilitate transactions. The barter system is inconvenient. It requires the double coincidence of wants which is hardly possible. This is why people shifted to currencies. Yet, to protect the security of the blockchain that makes cryptocurrencies like Bitcoin so secure, processing of Bitcoin transactions is very slow. In fact, it sometimes takes days to complete a single transaction due to the limit on the number of transactions which can be completed in a day.Resistance to changing these rules from people who mostly like the anonymity and untraceability of Bitcoin means that Bitcoin cannot become a widely-used currency. Its very security negates its value in everyday use.
Due to these drawbacks, the only reasons to own bitcoins are not to own them as a currency but to rather speculate on their asset value or use them to shield transactions from others.Rather it is a commodity asset that one trades, like gold or silver, in hopes that its value will rise and yield a trading profit.However, people should stop expecting it to become a currency that ordinary people use for ordinary transactions. People need to understand that Bitcoin is not a currency, nor it shall be,