By Roger Aitkin – With the former head of the Russian Federation’s Federal Tax Service and newly appointed Prime Minister, expressing the view that “all operations” with cryptocurrency should be taxed, industry pundits in the space are reflecting on what the impact and fallout might be.
By Roger Aitken – With the former head of the Russian Federation’s Federal Tax Service and newly appointed Prime Minister, expressing the view that “all operations” with cryptocurrency should be taxed, industry pundits in the space are reflecting on what the impact and fallout might be.
Mikhail Mishustin, a Russian economist and politician who was recently nominated by Vladimir Putin to serve as Prime Minister of Russia (confirmed on 16 January by the State Duma), said that the digital economy will become one of the country’s development priorities.
“I’m convinced that it is necessary to tax such operations. But first it was necessary to correctly assess the economic consequences that digital money [cryptocurrencies] can lead to,” he remarked to political factions this January. Mishustin’s appointment to Prime Minister, saw for the first time in history, no MP vote against it.
It is not the first time Mishustin, who graduated in system engineering in 1989 from the STANKIN, one of Russia’s top technical institutes, has taken a strident position.
As Director of the Federal Tax Service from 2010 to 2020, he declared war on “dirty data” and began to root out problems with unjustified VAT refunds. In the fight against corruption, Mishustin revealed previously that he intended to develop electronic services in the Federal tax service as much as possible.
In the wake of recent discussions, on 13 January Anatoly Aksakov, chairman of the State Duma Committee in Financial Market and a member of the National Banking Council of Central Bank of Russia, promised that the State Duma is “99% likely” to adopt the law on digital assets in the spring session, according to Russian media reports.
Back in November 2017, Mishustin revealed his attitude towards cryptocurrencies saying then they were a financial instrument. But for them to become real money a “whole story” needed to happen. And, last November he emphasized the effectiveness of digital platforms, although noting the threat they may pose to the industries through competition.
TASS reported that, as a result of the potential upcoming reforms, the state should according to Mishustin become a digital platform designed “for people”.
He ventured: “The first thing we want to do is seriously engage in institutional reforms. Management reforms, introduce the most modern digital technologies. Without a doubt, the state should be a digital platform that is created for people.”
As to industry reaction from within Russia, Anti Danilevski, founder of the Kick Ecosystem and KickEX cryptocurrency exchange in Moscow, acknowledged that: “We need to provide a credible, trustworthy ecosystem for all participants in the crypto space.”
He added: “So it is essential that we move away from anarchic concepts like anonymity. For the majority of legal businesses, anonymity is not necessary and can even be harmful. [But] without proper regulation and oversight, fraudsters, tax evaders and money launders can thrive.”
Observing the latest political upheaval – perceived or otherwise -–Danilevski reflected saying it was “good news” for a sector that is still maturing and his company welcomed such developments.
Russia recently adopted a crowdfunding law. However, to date there is still no law giving legal status to cryptocurrencies.
“I think the arrival of new Prime Minister Mikhail Mishustin increases the likelihood of Russian putting further protections in place for crypto consumers and enterprises,” ventured Danilevski. “What they do now is critical and there is very little room for error. The decisions they are about to take will impact the whole country and millions of people.”
In Kick Ecosystem’s case, it is developing crypto services such as the KickEX exchange with the “expectation that regulators will approve the model”, Danilevski indicated from Moscow.
He added: “The company had foresight on the direction that the industry was moving, so we are in pole position to benefit from the policy choices the state is now appearing to consider.”
As to the new Prime Minister’s interest in crypto, David Lofts, an ethical cryptocurrency and blockchain consultant based in the UK, commenting said: “Mishustin has a reputation for being a tough guy with an eye on the country’s elite, so his interest in cryptocurrency is no real surprise.”
Indeed, during his nine or so years as head enforcer of the Russian tax authorities he increased the country’s tax receipts by around 300%, and while the country still suffers from widespread tax evasion at street level, this is not where the big bucks are being recovered.
In a caveat to Mishustin’s latest goal, Lofts remarked: “Taxing the anonymity of crypto will undoubtedly be a bigger task than putting pressure on oligarchs and big business to pay up. But if anyone can do it Mishustin can.”
Furthermore, if he brings in former tax-police head Mikhail Zubkov and AML Tzar Viktor Zubkov as is currently rumoured, according to Lofts “we will probably see some heavyweight prosecutions as well as difficult questions being asked of Russian crypto exchanges and blockchain ICOs too.”
According to Siim Õunap, COO at Savii Digital blockchain marketing agency and FX trader: “Taxing digital services (cryptocurrencies included) has been an obstacle for many years. Actions that Russia intends to take are nothing new and are a logical step to battle tax evasion.”
The Estonian added: “Enforcing it, however, is going to be an interesting process to follow. While some countries have been successful in taxing digital services, other countries such as China are forced to create new laws constantly to battle the situation.”
Today most countries apply taxes on revenues generated. If it comes from trading cryptocurrency or crowdfunding then that is taxed. As well as Estonia being an example here, the UK, US, Canada and Australia, Switzerland tax cryptocurrencies.
Evelina Lavrova, a Russian national working in New York who founded of Decrypto PR and ranked among the ‘Top 10 Females of Crypto’ (2017), commenting said: “If Russia starts to tax cryptocurrencies, individuals and companies will be prompted to move to another jurisdiction. Basically Russian entrepreneurs prefer to incorporate blockchain and crypto start-ups outside of Russia – such as the British Virgin Islands (BVI), Estonia, UK and Switzerland amongst other jurisdictions.”
Paolo Ardoino, CTO at Bitfinex crypto exchange headquartered in Hong Kong and registered in the BVI, said: “Taxing crypto wealth is indeed possible when users decide to convert their crypto assets into fiat and withdraw them to a bank account. This taxation effort might prove more complex if the concept of a circular economy becomes more and more popular.”
Based between London and Switzerland, Ardoino added: “Such a development will provide an incentive for users that have crypto to offer their services directly in crypto and to buy goods with crypto.”
Travin Keith, a cryptocurrency and blockchain consultant based in Zug, Switzerland, said: “The level of effectiveness is largely going to be determined by how they implement the taxation of cryptocurrencies. If the authorities implement the tax at the point of conversion to the Ruble (RUB) for instance as capital gains taxes, it would likely have a higher level of effectiveness, as then they would only need to enforce their policies on the ‘off-ramps’ where the conversions happen.”
As regards obstacles the Russian authorities might face in how the apply the tax, Keith added: “Should they wish to levy taxes on crypto holdings as a wealth tax, then this would have a significant number of obstacles as current holdings are not something easy to know – to say the least – not withstanding and even considering privacy-oriented coins with anonymity features.”
He suggested it would also probably be “even more effective” if the tax were only implemented at the point of withdrawal, since then “the banks would be the ones able to levy the tax themselves or make that report to the government.”
Danilevski at KickEX said that as far as anonymity in the space is concerned it basically “does not exist” adding that “the constant discharge of personal data has already turned into some kind of flash mob from the largest corporations and the same ‘super-protected’ banks around the world.”
“It really only benefits the same crooks and scammers who profited during the Initial Coin Offering (ICO) boom, at the expense of most other investors. And, we are relieved that the period of hype and unsustainable growth is history.”
