IMF identifies potential for tens of billions in taxes from crypto assets, provides limited solutions for collection

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In a recent working paper, the IMF has acknowledged the intricate nature of taxing crypto, highlighting governments' insufficient measures in addressing the diverse taxation methods for crypto assets. The IMF cautions that the uncollected taxes on crypto transactions could potentially reach a staggering sum of tens of billions of dollars. However, finding viable solutions remains a significant challenge.

The unique characteristics of crypto, including their semi-anonymity, dual nature as investments and payment methods, and high volatility, pose significant hurdles for tax collectors. One major obstacle is the absence of a consensus on how to tax cryptos—whether as income, capital gains, or gambling.

While crypto's high fees and volatility make it less attractive for tax evasion, the IMF suggests that if the potential for crypto tax collection can be harnessed, "corrective" taxation could help counterbalance the undesired macroeconomic effects of crypto and support environmental goals. The paper also highlights the exploration of green taxation, although additional mechanisms must be considered.

Research cited in the paper examines crypto transactions relative to tax authorities' statements in the United States, demonstrating that the market does respond to regulatory guidance, sometimes leading to new evasion attempts.

Despite the vast amount of transaction data available in principle, the IMF observes a need for more analytical work and empirical evidence in this area. The popularity of cryptos in emerging economies, where collection technology may be limited, presents another challenge.