As part of a “war against black capital,” the Israeli government is stepping up efforts to prevent tax fraud and plug loopholes for would-be money launderers. 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 NIS ($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 widely accepted by the general public, and they are now exchanged on exchanges as an asset. Digital money may be broken into small amounts, transmitted quickly via electronic methods, and are not susceptible to examination or surveillance. Virtual currency is a convenient and effective technique of concealing income, collecting undeclared assets, and money laundering in certain circumstances.”
The introduction of this policy, if authorized, will increase state income by 30 million NIS ($9.2 million) in 2022 through additional taxation.
Meni Rosenfeld, the leader of the Israeli Bitcoin Association, issued a letter to Israeli Tax Authority chief Eran Yaakov earlier this week. He claimed that the rigorous reporting requirements would result in the creation of a database of Bitcoin owners, which would be unprecedented in comparison to any other asset.
Due to the price fluctuation of virtual assets, Rosenfeld claims that crypto investors may 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 limits investors’ rights to a hearing and jeopardizes the proposed legislation’s effectiveness.
Rosenfeld’s argument that the rule will unfairly discriminate against Bitcoin holders, casting them as “possible criminals,” was also highlighted. 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.
Itai Bracha, a tax lawyer, the law was unclear “The authorities have taken yet another aggressive step toward becoming a ‘Big Brother.’ The ruling makes it obvious 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.