Governments Eyeing Crypto for Revenue Amid Tax Changes
Cryptocurrency might become the initial tax lever that governments activate when in need of additional revenue, as evidenced by Brazil’s recent actions.
In June, Brazil eliminated its tax exemption for small crypto gains and implemented a flat rate of 17.5% on all capital gains derived from digital assets, irrespective of the amount. This decision was part of a wider initiative by the Brazilian government to increase revenue through enhanced taxation of financial markets.
This development goes beyond a mere local tax adjustment. A distinct pattern is surfacing where governments are identifying ways to extract more tax revenue from this asset class. Worldwide, policymakers are reassessing crypto as a potential revenue source.
Just this year, Portugal introduced a 28% tax on crypto gains held for under a year, marking a notable shift for a nation that had previously regarded crypto as tax-free.
The pressing question now is how long countries with pro-crypto tax regimes will be able to maintain their current stance before adopting similar measures, and which ones will be next to tighten regulations.
More Read
For instance, Germany currently exempts crypto gains from capital gains tax if the assets are held for more than one year. Even for assets held for under a year, gains up to 600 euros ($686) annually remain tax-exempt.
Meanwhile, the United Kingdom provides a capital gains tax-free allowance of 3,000 pounds ($3,976) on all assets, including crypto. However, this amount was reduced by 50% from 6,000 pounds in 2023, signaling the potential for further reductions in the future.
While this may appear to be a minor adjustment, lowering the 3,000-pound threshold could yield significant tax revenue, particularly given recent data from the Financial Conduct Authority (FCA) indicating that 12% of UK adults now hold crypto.
It’s difficult to believe this possibility is entirely off the table, especially as government debt in the UK continues to rise.
The period during which retail crypto investors could enjoy a regulatory gray area is coming to an end. As the crypto market evolves and prices keep climbing, governments are paying attention to the media narratives surrounding crypto’s remarkable growth.
This is particularly relevant in emerging markets, where governments are increasingly pressured to fill budget gaps without triggering political backlash from more apparent or controversial tax increases.
No other asset has matched Bitcoin’s average annualized return of 61.2% over the past five years.
Fortunately for governments, crypto presents a relatively easy tax target. It is frequently viewed as risky, speculative, and primarily beneficial to the wealthy. While taxing it tends to be less controversial with the public, it also carries drawbacks, particularly for ordinary investors and startups.
While large institutions may be able to absorb costs or shift to jurisdictions with more favorable regulations, everyday users—particularly those utilizing crypto for savings in economies vulnerable to inflation—will bear the burden.
With the increasing likelihood that other nations will replicate Brazil and Portugal’s framework, the era of low-tax or tax-exempt crypto investing could soon come to an end.
The question isn’t if other crypto-friendly countries will tighten their grip on crypto taxation; it’s about how quickly and forcefully they will do so.
This article is for informational purposes only and should not be construed as legal or investment advice. The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of VIZI.
