Government of Bulgaria has imposed a 10% tax on crypto gains. The National Revenue Agency (NRA) has investigated and decided to put the tax on profits generated by investors and traders.
In a very plain move, the government has set a tax that follows the same principles as that of traditional taxation of profits made. The Bulgarian government classifies cryptocurrencies as digital assets and therefore, digital tokens now come under the same taxation policies.
This poses a major issue in tax declaration. Cryptocurrencies are known for the volatility, with major ones like Bitcoin and Ethereum having a up or down of 5 to 15% as normal. Another issue that the policy does not account for is the immense price movements digital currencies make whenever there is a great rise or crash.
In the last two months, Bitcoin, for example, has fallen form an average of USD 6,500 to around USD 3,600. This represents a roughly 45% loss. A declaration before the crash would have led to a higher pay out of taxes, while the subsequent crash would have left the trader with little money in hand.
Japanese authorities have learnt from this and are in the process of amending their crypto tax laws.
Impact on the Industry
The 10% tax is a very low one, as compared to other countries. Yet, the aggressive move to enforce tax may harm the industry as it does not account for the price volatility. Another thing that the Bulgarian government does not understand is the financial load it will put on the exchanges within its jurisdiction.
Although exchanges do deploy Know Your Customer (KYC) and Anti Money Laundering (AML) laws, they will spend a significant resources entertaining asset details. Coinbase, for example, spent around USD 1 million to push back and reply to asset details by the U.S. Internal Revenue Service (IRS) in 2017. CEO Armstrong said at that time, “We will likely incur a legal cost of between $100,000 and $1,000,000 in the process of defending our customers from this overly broad subpoena; funds which could be put to better use building innovative products or hiring more employees. This heavy handed approach by the IRS punishes one of the good guys.”