The International Monetary Fund (IMF) says global tax systems need to be modernized to accommodate crypto assets.
In a new blog post, the IMF says the tax system needs to be updated to cope with crypto assets, whose anonymity and decentralized nature pose challenges to governments.
The bank says tax evasion in particular could become a major problem if crypto is ever widely used as a currency for transactions.
“Crypto transactions have similarities to cash transactions in that they can be hidden from tax authorities. Today, the share of purchases with crypto is still small. But widespread use, if tax systems were not prepared, could one day lead to widespread VAT and sales tax evasion, leading to significantly lower government revenues. This is perhaps the biggest threat to crypto.”
If most crypto activity takes place through centralized exchanges, then the IMF says many of the tax evasion threats are manageable, but decentralized exchanges (DEXs) pose a different kind of problem for authorities.
“The problem is surmountable when people transact through centralized exchanges, as they may be subject to standard ‘know your customer’ tracking rules and possibly withholding tax. Many countries are introducing such rules with the expectation that tax compliance will improve…
A more disturbing possibility is that reporting rules (and the failure of some crypto intermediaries) could lead people to increasingly transact through decentralized exchanges or directly through peer-to-peer transactions where no central governing body oversees these transactions. These are still extremely difficult for tax administrators to understand.”
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