According to Contilegis, governments around the world are increasingly targeting cryptocurrencies as a source of tax revenue, with recent changes in public policy in Brazil serving as a prominent example. In June, Brazil abolished its tax exemption on minor capital gains and imposed a 17.5 percent tax on all capital gains from digital assets. This move is part of a broader strategy by the Brazilian government to boost revenues by increasing taxes on financial markets.
This trend is not isolated to Brazil. In 2023, Portugal introduced a 28 percent tax on crypto gains realized within less than a year, marking a significant shift for a country that previously treated them as tax-free. The global landscape is changing, and the question remains as to which countries can maintain their stance before similar measures are taken by countries with favorable tax policies for cryptocurrencies. For example, Germany currently exempts capital gains from taxation if the assets are held for over a year, with gains up to 600 euros per year being tax-exempt for shorter holdings. Meanwhile, the UK has reduced its tax-free allowance on all assets, including cryptocurrencies, from £6,000 to £3,000, indicating the potential for further cuts.
The era of regulatory leniency for retail investors has come to an end. As maturity and prices in the market continue to rise, governments are increasingly recognizing the potential tax revenues from this asset class. This is particularly evident in emerging markets, where governments are under pressure to address budget deficits without resorting to more overt or controversial tax increases. Bitcoin, with an average annual return of 61.2 percent over the past five years, reflects the profitable nature of investments in cryptocurrencies.
Cryptocurrencies represent a viable tax target for governments and are often viewed as risky and speculative, primarily benefiting traders. While taxing cryptocurrencies may not be controversial with the public, it poses challenges for investors and everyday individuals. For instance, Brazil's 17.5 percent tax structure affects small traders. Large institutions can absorb these costs or relocate to jurisdictions with more favorable rules, but everyday users, especially those living in inflation-prone economies, bear the burden.
With more governments looking to Brazil and Portugal for guidance, the era of low-tax or tax-exempt investment may be coming to an end. The critical question is not whether other crypto-friendly countries will tighten their grip on taxes on cryptocurrencies, but rather how quickly and harshly they will do so.
