Crypto Tax Hikes: Are More Countries Set to Follow Brazil?

Brazil's Crypto Tax Grab: A Sign of Things to Come?

Opinion by: Robin Singh, CEO of Koinly

Brazil's recent move to increase taxes on digital assets may indicate a broader trend of governments targeting crypto for revenue generation.

In June, Brazil eliminated its tax exemption for minor crypto gains, imposing a flat 17.5% tax on all capital gains from digital assets, regardless of the amount. This decision is part of a larger governmental strategy to increase revenue through financial market taxation.

This isn't just a local issue. A pattern is forming where governments are actively seeking ways to tax crypto assets more heavily. Policymakers worldwide are reassessing crypto as a potential revenue stream.

A Global Pattern is Beginning to Emerge

In 2023, Portugal introduced a 28% tax on crypto gains held for less than a year, a significant shift for a country previously known for its crypto-friendly tax policies.

The key question now is how long other nations with crypto-friendly policies will maintain their stance before following suit, and which will be the next to increase taxation.

For example, Germany currently exempts crypto gains from capital gains tax if the assets are held for over a year. Even for holdings under a year, gains up to 600 euros ($686) annually remain tax-free.

The United Kingdom provides a wider 3,000 pounds ($3,976) capital gains tax-free allowance on all assets, including crypto, although this was reduced by 50% from 6,000 pounds in 2023, suggesting possible future cuts.

Retail Investor Gray Zone Coming to a Close

Reducing the 3,000-pound threshold could generate significant tax revenue, especially given that 12% of UK adults now hold crypto, according to recent Financial Conduct Authority (FCA) data.

The era of regulatory leniency for retail crypto investors is ending. As the crypto market matures and prices rise, governments are noticing crypto's rapid growth.

This is particularly true in emerging markets, where governments face pressure to address budget deficits without triggering political backlash from more visible tax increases.

Bitcoin boasts an average annualized return of 61.2% over the past five years, making it an attractive target.

Crypto is an Easy Target for Governments

Crypto is a relatively easy tax target for governments due to its perceived risk and speculative nature, often seen as primarily benefiting wealthier individuals. Taxing crypto is less controversial with the public, but it poses challenges for everyday investors and startups.

Brazil's 17.5% tax structure disproportionately affects small traders.

While larger institutions can absorb the costs or relocate to more favorable jurisdictions, everyday users, especially those using crypto for savings in inflation-prone economies, bear the brunt.

Given the increasing likelihood of other governments following Brazil and Portugal, the era of low-tax or tax-free crypto investing may be ending.

The question is not if, but when and how quickly other crypto-friendly nations will tighten their crypto tax policies.