Transaction tax

Will Indonesia’s decision to tax crypto stifle local adoption?

Uplands

Indonesia is the latest Asian country to announce plans to impose a tax regime on all crypto transactions and an income tax on capital gains from such investments, Reuters reported,

Indonesia has chosen to impose a 0.1% VAT – deducted at source – on every cryptocurrency transaction. The new regime will take effect from May 1, Reuters reported, citing government tax official Hestu Yoga Saksama.

Indonesia, India and Crypto

With the growing popularity of cryptocurrencies and crypto-trading activities, several countries around the world are considering how they can tax and regulate the virtual asset industry.

Crypto adoption in Indonesia has increased significantly since the end of the pandemic, with as many as 11 million Indonesians owning at least one digital asset by the end of 2021.

The Commodity Futures Trading Regulatory Agency estimated that the total value of cryptocurrency transactions in the commodity futures market reached 859.4 trillion rupees ($59.8 billion) in 2021. This represents an increase of almost 10 times transactions compared to 2020.

Indonesia is the second Asian country to introduce taxation on crypto-assets in recent weeks. India has also introduced a crypto tax regime which came into effect on April 1. After months of deliberation on whether to ban crypto in India, the government opted to impose heavy taxes instead, with a politician claiming the high tax is meant to discourage people from investing in crypto .

In comparison, the taxes that will be imposed on Indonesians are much more lenient and more conducive to the growth of the local crypto industry.

Why Indonesia Taxes Crypto

The country is largely pro-crypto, with citizens allowed to trade and invest as they wish. However, the Indonesian government has banned businesses from accepting digital assets as payment methods.

At the press conference where the new taxes were announced, Saksama said that:

Crypto-assets will be subject to VAT as they are a commodity defined by the Ministry of Commerce. They are not a currency.

The VAT on crypto is much lower than the country’s general sales tax of 11%, but capital gains income tax is set at 0.1%, which is equivalent to the tax on securities – 0.1% of the gross value of the transaction.

According to Saksama, the new taxes on crypto-assets are provided for by tax legislation passed last year. However, the lack of a regulatory framework for crypto remains a major challenge.

Although the imposition of the tax implies tacit approval by the government, the lack of real regulation and supervision can hinder the development and adoption of crypto in these countries.

Symbiosis