Business & Finance

Cryptocurrency Legalization in Ukraine Will Come at a Price

In a series of bills presented to the parliament, the latest one suggests imposition of taxes on crypto incomes

A new bill has been proposed in the Ukrainian parliament that advocates imposition of a 5% tax on crypto incomes. The bill, drafted by deputies and representatives of the crypto industry in the country, proposes that investors, businesses and individuals will be required to pay a 5% tax on their profits taken from trading and mining all cryptocurrencies when they are exchanged to fiat currency. This proposal is included in a draft bill, presented before the Ukrainian parliament, Verkhovna Rada, that envisages an additional 5% tax on the already concurrent 1.5% military tax that the Ukrainians owe the state since the start of conflicts in the East. According to Liga, MP Alexey Mushak is working on the document. He had stated in a public post over Facebook that he has drafted it together with a group of 20 representatives of different companies.

Mushak posted a statement:

We go to the home stretch to create conditions for digital tokens and cryptocurrency in Ukraine. This is the outcome of many meetings and work of many people. There are many more nuances left to figure out. The final version will be ready in two weeks. I ask you to comment and edit. The thoughts of market practitioners are especially important.

This is not the first bill to be submitted to the Rada regarding cryptocurrencies and digital assets. 3 bills have been stuck since last October and the fourth one to be presented by deputies of the group of people involved in it’s legislature is expected to be presented in September. Despite gaining popularity, cryptocurrency is not yet legalized in the country and the officials are still at loggerheads about how to understand it’s working completely before making substantial decisions.

A law on “The Circulation of Cryptocurrency in Ukraine” was presented before the Rada in October last year. It’s aim was to move towards legalization of Bitcoin, as reported by Ukrainian media. The draft provides legal definitions of basic terms like cryptocurrency, blockchain, mining, etc. It also contains an explicit disclaimer that neither the central bank, nor the executive power in Kiev would bear responsibility or provide protection against any risk associated with cryptocurrencies. An alternative bill “On Stimulating the Market of Cryptocurrencies and their Derivatives” was also introduced by Ukrainian legislators on October 10, 2017.

The latest draft is due in September 2018, and it introduces the 5% taxation rate on profits from crypto mining and trading. This amount will be leveraged at the difference between the buying and selling price of digital assets and the difference between mining income and mining expenses. It will be due only when the crypto funds are exchanged to fiat or in case of payments for goods and services, including property. Crypto-to-crypto transactions will not be taxed. According to Mushak, the crypto industry has a positive attitude towards the proposals made in the document.

The state shouldn’t touch the exchange between cryptos but the exit to fiat, the real sector, and the purchases of goods. 5% sounds optimal. In fact – this is the price to pay for the legalization of income from dealings in crypto,

said Artiom Afyan, managing partner at Juscutum law firm.

In addition to the 5% introduced, Ukrainians will be paying another 1.5% tax on all profiting crypto-transactions in a so called ‘Military Tax’ imposed by the Government. This was done in a temporary attempt to reform the armed forces of Ukraine in 2014. Ukraine’s army is engaged in a military conflict with pro-Russian forces in the Eastern part of the country since the same year.

The proposed bill serves as another attempt in the legalization of crypto in the region, but due to proposed taxation, tilts in favor of the regulators and legislators. According to the bill, the crypto market will be regulated and looked over by the National Securities and Stock Market Commission (NSSMC), who have been themselves preparing a concept for regulation of the crypto market and ICOs. A press service of the regulator said:

The commission will establish the procedure and requirements for the ICO procedure.

In May, the Ukrainian National Securities and Stock Market Commission (SSMCS) also announced it would consider recognizing cryptocurrencies as a financial instrument, suggesting that crypto regulations would for now need to be determined on a national level given that “international standards” are still “a long way off.”

Verily, Cryptocurrencies have been picking up attention from all corners of the community. Analysis showed that in 2017, the most “what is” phrase searched by Ukrainians was topped by the terms ‘Bitcoin’ and ‘Mining’. This adds to the National Bank of Ukraine’s (NBU) plans to introduce a digital version of their national currency, the Hryvnia that they said of via Facebook, back in January. Alexander Momot, CEO of the Ukrainian crypto startup Remme, thinks that in order to stimulate the development of the crypto sector in the country, tax and regulatory breaks should be introduced instead of tax and regulatory regimes. Although, officials seem to be adamant that the legalization and it’s superseding stimulus would come at a price.

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Razi Khan

Researcher, Electrical Engineer and a teacher, Razi is one who takes great intrigue in the prospects of blockchain and cryptocurrencies (BTC in particular) while contributing a critical approach over the subject regularly. Email: razi@blockpublisher.com or contact the editor at editor.news@blockpublisher.com

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