The Israeli government is stepping up efforts to prevent tax fraud and money laundering in its economy.
A new regulatory duty to place cryptocurrency users under tighter inspection is one of the measures described in a new draft bill presented by the Ministry of Finance this week.
The proposed rule would require cryptocurrency users who have purchased 200,000 Israeli shekels ($61,000) in cryptocurrencies or who have crypto holdings worth the same amount or more to file a report with the Israeli tax authorities.
This reporting requirement would apply to any Israeli citizen who possessed cryptocurrency worth this amount or more on one or more days during the tax year, either individually or on behalf of a kid under the age of 18. According to the bill,
“Virtual currencies have become commonplace among the public, and they are practically traded as an asset on exchanges. Digital coins can be subdivided into small units, transferred relatively easily by electronic means, and are not subject to surveillance or inspection. In these circumstances, virtual currency is a convenient and effective means of concealing income, accumulating undeclared assets and money laundering.”
The introduction of this proposal, if authorized, would increase state revenues by 30 million shekels ($9.2 million) in 2022 through additional taxation.
Meni Rosenfeld, chairman of the Israeli Bitcoin Association, submitted a letter to Israeli Tax Authority chief Eran Yaacov earlier this week, according to Israeli business newspaper TheMarker.
He claimed that the rigorous reporting requirements would result in the creation of a database of Bitcoin (BTC) owners, which would be unprecedented in comparison to any other asset.
Rosenfeld went on to say that because of the price volatility of digital assets, crypto investors could be subject to a reporting obligation one month and then fall below the threshold the next.
He wrote that the choice to make this alteration to the law without any discussion or understanding of its effects severely restricts investors’ rights to a hearing and jeopardizes the proposed legislation’s effectiveness.
Rosenfeld’s criticism that the bill will unfairly discriminate against Bitcoin holders and portray them as “possible criminals” was also mentioned by the Israeli daily Globes.
The proposed regulations, in his opinion, run against the grain of facilitating access to the digital economy in general, a field that already faces enormous regulatory obstacles.
The measure, according to tax lawyer Itay Bracha, is “another aggressive step made by the government toward becoming a ‘Big Brother.'”
The ruling makes it plain that the state does not trust taxpayers to adequately declare and pay their debts.” Despite the classificational similarities between stocks and other assets and cryptocurrencies, Bracha pointed out that in Israel, investors who trade stocks or other assets are not required to file reports.