Israel may increase taxation on crypto assets
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Israel may increase taxation on crypto assets
Related news: Israel's State Comptroller calls on tax authorities to address an $800M cryptocurrency tax gap.
Navigating Web3 tides with focused insightsArticle: TaxDAO
Author: Shalini Nagarajan
According to Israeli news outlet Globes, Israel's State Comptroller Matanyahu Englman has criticized the country’s tax authority for failing to strengthen tax enforcement on cryptocurrency, resulting in significant revenue losses. This criticism comes at a time when Israel is facing increased debt due to ongoing conflict. Englman stated that the government could have generated an additional 3 billion new shekels (approximately $800 million) in tax revenue from cryptocurrency transactions for the Treasury. As such, he urged the government to prioritize effective measures to tax cryptocurrencies rather than increasing the tax burden on the public.
A review of tax data between 2018 and 2022 reveals a grim picture of cryptocurrency taxation in Israel. The Israeli Tax Authority receives only around 500 cryptocurrency-related transaction reports annually, while the estimated number of cryptocurrency wallet holders ranges between 200,000 and 1.7 million. This means reported transactions account for just 0.03% to 0.25% of expected volumes, highlighting severe issues of tax evasion and non-compliance in the sector.
The audit report further notes that since 2018, the Israeli Tax Authority has shown minimal initiative in addressing cryptocurrency taxation, having issued only three documents on the subject. These publications have not been updated or revised in recent years and are no longer reflective of the fast-evolving digital asset market.
Source: https://cryptonews.com/news/israel-auditor-blames-tax-agency-for-800m-crypto-tax-gap/
TaxDAO Commentary:
Israel was one of the first countries to issue cryptocurrency tax principles. However, while regions like the European Union and the United States have made notable progress in cryptocurrency regulation in recent years, Israel has gradually fallen behind. The Israeli Tax Authority treats cryptocurrency as property, with capital gains tax applicable on proceeds from sales. Nevertheless, Israel still lacks a comprehensive legal framework for taxing and regulating digital assets. At the same time, the country currently faces fiscal pressures requiring increased revenues to support national expenditures—particularly high costs in defense and security. Under these circumstances, digital assets have become a prime target for boosting state tax income.
The State Comptroller's report identifies multiple shortcomings in Israel's digital asset tax system and offers corresponding recommendations. These include scientifically assessing tax potential, adjusting and expanding taxpayer procedures, providing practical training for handling crypto-related documentation, and adapting reporting frequencies and form formats based on the nature of cryptocurrency use. The identification of these issues and proposed solutions indicates that relevant authorities in Israel are beginning a thorough and serious reassessment of their digital asset tax regime. Objectively speaking, taxing digital assets remains a challenging issue globally. However, Israel’s current system undeniably contains major loopholes, and combined with mounting fiscal pressure, strengthening tax enforcement on digital assets has become inevitable.
Israel's influence on the global economy cannot be overlooked, and the Middle Eastern market is increasingly becoming a hotspot for digital asset adoption. If Israel intensifies its taxation of digital assets, it may negatively impact the local industry in the short term. In the long run, however, such measures could drive Israel’s digital asset regulations toward greater standardization and transparency, fostering compliant growth within its domestic crypto industry. TaxDAO will closely monitor Israel’s next steps and provide timely updates on reforms in its digital asset tax policies.
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