By:Nghiinomenwa-vali Erastus
The bewildering speed in the development of crypto assets and their pseudonymity (near-anonymous state) has left tax systems playing catch up, including Namibia’s.
According to the International Monetary Fund (IMF), crypto assets that can be used as instruments of payment have proliferated into more than 10,000 variants since the 2009 debut of Bitcoin, the first and still the largest.
So far two countries’ central banks, El Salvador and the Central African Republic, have gone so far as to adopt Bitcoin as legal tender.
In Namibia, the Ministry of Finance and Public Enterprises has tabled a bill to regulate the sale, trade and transfer of virtual assets, licensing of virtual assets services providers together, with issuers of initial tokens.
The new Bill defines “virtual token” as any cryptographically secured digital representation of one or more rights provided on a digital distribution ledger platform or similar platform and issued or to be issued by a token issuer.
However, no clarity on how the tax system and provisions will be handling the virtual assets.
According to the IMF assessment, critics see crypto assets as not merely inherently worthless but as a front for crime, scams and gambling.
At the same time, their volatility has also taken centre stage. Bitcoin soared from $200 a decade ago to nearly $70,000 in 2021 before plunging to around $29,000 today.
The collapse last year of the FTX Trading Ltd., one of the largest digital currency exchange platforms for buying and selling cryptocurrencies, has also fed anxiety among users while the appeal to criminal activities has been reflected in high-profile seizures of billions of dollars.
These developments, according to the IMF, have triggered increasing scrutiny from policymakers and widespread calls for regulation.
A key issue is how to classify crypto assets, and whether they should be regarded as property or currency.
The IMF officials explained that when crypto is sold for profit, capital gains should be taxed as they would be on other assets.
At the same time, purchases made with crypto should be subject to the same sales or value-added taxes (VAT) that would be applied for cash transactions.
Thus, the mammoth task now is to have clarity on how to characterise crypto for tax purposes. In essence, as currencies for VAT and sales taxes and as assets for income tax purposes.
“While this is not easy due to the evolving nature of crypto asset transactions, it is perfectly possible. The deepest challenges are then in enforcement,” the IMF highlighted.
As for the Namibian Virtual Asset, Virtual Asset Providers, and Initial Token Offerings Bill, it provides for the licensing and regulation of virtual asset service providers.
It will also make provision for the designated regulatory authority to regulate and supervise virtual asset service providers and related activities.
This is to ensure consumer protection, prevent market abuse, and prevent or mitigate the risk of money laundering and financing of terrorism and proliferation activities posed by virtual assets markets.
In terms of taxation, the Bill is, however, silent.
The Bill, however, indicated that the Minister may, after consultation with the regulatory authority, by notice in the government gazette, declare digital representations of value to be virtual assets.
Crude estimates from the IMF suggest that a 20% tax on capital gains from crypto would have raised about $100 billion worldwide amid soaring prices in 2021.
This is about 4% of global corporate income tax revenues or 0.4% of total tax collection. Email: erastus@thevillager.com.na
