The advancement of the cryptocurrency taxation bill indicates that the Russian government's regulatory attitude towards cryptocurrency mining is gradually becoming clearer and more standardized.

Written by: TaxDAO

Related News: Russia Approves Cryptocurrency Tax Framework

Author: Andrey Sergeenkov

According to Izvestia, the Russian government's legislative activity committee advanced a bill on November 11 aimed at taxing cryptocurrency businesses through corporate income tax and personal income tax systems. These regulations follow the new mining regulatory provisions implemented in Russia starting November 1.

The regulation was initially drafted in 2020 but has been delayed until now. It classifies cryptocurrency as property and sets tax requirements for individual and corporate miners. Companies need to register with the Federal Tax Service to mine legally, while individuals can mine without registration as long as their monthly electricity consumption is below 6,000 kilowatt-hours (about six times the average electricity consumption of Russian households).

Russia implements a two-stage taxation model for mining businesses. In the first stage, companies pay an initial tax when cryptocurrency enters their wallets, with the tax base calculated based on the closing price of major exchanges on the deposit date. Companies can choose the most suitable price source from exchanges, and all foreign currency values will be converted into rubles at the official exchange rate of the central bank. In the second stage, the cryptocurrency sales stage, if the sale price exceeds the initial taxable value, an additional tax must be paid, while a price drop can be claimed as a deductible loss. To prevent tax evasion, the law stipulates that the minimum taxable value should be 80% of the market price, meaning that the appreciation of Bitcoin between acquisition and sale will be subject to taxation.

Starting in 2024, individual traders and miners with annual incomes exceeding 2.4 million rubles will pay a progressive tax ranging from 13% to 22%, while the corporate tax rate will increase to 25% in 2025.

Companies can reduce their tax base through verifiable operating costs (including electricity bills, mining equipment purchases, maintenance, facility rentals, and employee salaries). The tax base for mining businesses remains separate from other business activities and requires separate accounting and reporting. Tax authorities have the right to request bank statements for cryptocurrency-related accounts if they suspect violations, while regulators can also monitor transactions of cryptocurrency to legal currency through banks.

Compliance Requirements:

Mining infrastructure operators must report all service provision data to the Federal Tax Service, with late or unreported submissions subject to a fine of 40,000 rubles (approximately $417). This new oversight scope is not limited to individual miners but also includes hosting service providers and mining pools.

There are some notable exceptions in the framework—cryptocurrency businesses will not be required to pay value-added tax (VAT). The government rejected earlier proposals to levy a special consumption tax on electricity used for mining.

Izvestia cites industry representatives who argue that taxable income should only be recognized upon the sale of cryptocurrency, rather than at the time of mining, due to concerns about investment attractiveness.

News Source: https://www.forbes.com/sites/digital-assets/2024/11/13/russia-approves-cryptocurrency-tax-framework/

TaxDAO Brief Commentary

The advancement of the cryptocurrency taxation bill indicates that the Russian government's regulatory attitude towards cryptocurrency mining is gradually becoming clearer and more standardized. First, the bill explicitly classifies cryptocurrency as property, providing a legal basis for cryptocurrency payments. Second, the bill requires companies to register with the Federal Tax Service to mine legally, while individuals have electricity consumption limits, and those exceeding the limit must register as individual entrepreneurs. This regulation both restricts illegal mining activities and ensures tax compliance.

The motivations and goals behind the Russian government's push for the cryptocurrency taxation bill are multifaceted. First, with the growing global attention on digital currencies, Russia's cryptocurrency market has also experienced explosive growth, expected to reach a market size of $18 billion by 2023. This rapid growth has prompted the Russian government to formulate corresponding tax policies to adapt to the rapid development and widespread application of digital currencies. Second, in the face of international political tensions and sanctions against Russia, increasing tax transparency and combating tax evasion remain global issues. The Russian government hopes to enhance tax transparency through legislation and take effective measures to address these issues. President Putin has stated that the government will regulate cryptocurrency transactions to ensure market stability and protect investors, which includes formulating relevant regulations to standardize cryptocurrency transactions and ensure compliance with the national financial regulatory framework. Third, the Russian government also aims to increase national fiscal revenue through the cryptocurrency taxation bill. According to analysis, Russia could collect up to 1 trillion rubles (approximately $13 billion) in taxes annually from legal cryptocurrency exchanges and investments in cryptocurrency. However, the current tax law framework in Russia has some issues, such as ordinary taxpayers facing challenges in paying taxes in foreign currencies, understanding complex tax laws, and independently calculating and paying taxes. These issues not only increase the burden on taxpayers but may also affect national fiscal revenue. Therefore, centralizing the tax mechanism for cryptocurrency transactions and assigning the responsibility for calculating and paying taxes to professional participants in the financial market—tax agents—has become a solution. Through these measures, the Russian government hopes to improve tax transparency, combat tax evasion, and ensure that cryptocurrency transactions comply with the national financial regulatory framework.

Compared to cryptocurrency tax policies in other regions of the world, Russia's new regulations not only reflect a profound understanding of this emerging market but also demonstrate innovative thinking in tax policy. The bill introduces a two-stage taxation model, with the first stage involving the payment of initial tax when cryptocurrency enters wallets, and the second stage involving additional tax or deductible losses based on market price changes during the sales stage. This design aims to prevent tax evasion and ensure tax fairness. Notably, the bill also stipulates that starting in 2024, individual traders and miners with annual incomes exceeding 2.4 million rubles will be subject to progressive taxation, and the corporate tax rate will increase to 25% in 2025. This indicates that the Russian government aims to control the volatility of the cryptocurrency market through tax measures and increase national fiscal revenue.

Overall, the news of Russia approving the cryptocurrency tax framework reflects significant progress in the country's digital economy and cryptocurrency sector. This move not only marks further advancement towards the legalization of cryptocurrency in Russia but also showcases its strategic intentions in the global digital economy. However, this policy also faces numerous unresolved challenges, such as the volatility of the cryptocurrency market and the high energy consumption of mining activities, which may negatively impact the Russian economy. Whether this policy can effectively navigate these challenges and ensure the sustainable development of the industry will require time for testing and in-depth evaluation. In this process, the wisdom and decisiveness of the Russian government will be put to the test, and the effectiveness of its policies will provide valuable experience and insights for global cryptocurrency regulation.

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