In recent years, cryptocurrency has rapidly become a popular investment option, but a recent study suggests that most investors are not paying taxes on their crypto earnings. This article examines the accuracy of these findings and the methodology used to produce them. We’ll also explore expert opinions on the matter and discuss the potential consequences for investors who fail to meet their tax obligations.
The Divly Report’s Startling Findings
According to a report published by Swedish crypto tax firm Divly, a mere 0.53% of global cryptocurrency investors paid taxes on their earnings in 2022. The study ranked countries based on the proportion of tax-paying crypto investors, with Finland and Australia leading the way, while the United States placed 10th. At the bottom of the list were India, Indonesia, and the Philippines, with strikingly low tax compliance rates.
Despite the shocking statistics, many tax experts have raised concerns about the methodology used in the Divly report. The study’s estimates were primarily derived from analyzing the relationship between the number of people who declared cryptocurrency in their tax returns, the search volume for crypto tax-related keywords in various countries, and the number of crypto holders per country as reported by Statista’s Global Cryptocurrency Report.
Critics argue that search volume data may not accurately reflect the number of crypto taxpayers since not everyone who pays tax searches for crypto tax-related information online.
Additionally, the report assumed that the number of searches related to crypto tax reporting did not vary across different countries, which could introduce a potential bias towards countries with greater internet access and more accurate search volume data.
Experts Weigh In on the Crypto Tax Findings
Danny Talwar, global head of tax at crypto tax software company Koinly, and Greg Valles, a Blockchain Australia board member, have voiced their skepticism about the report’s claim that 99.5% of crypto investors did not pay taxes in 2022. They note that government data matching and surveillance efforts are making it increasingly difficult to avoid crypto taxes.
Valles asserts that as government technology becomes more sophisticated and specialized, it will be easier to detect non-compliance. However, he warns that those who fail to report their crypto profits now may face repercussions in the future.
Talwar adds that although the risk of non-compliance for crypto is higher than other asset classes, tax authorities in many countries have processes to obtain data from crypto exchanges. He also highlights that Koinly has observed a considerable increase in crypto tax awareness among investors in these jurisdictions, with only 15% of surveyed crypto investors being unaware of their reporting duties.
While the Divly report’s claim that 99.5% of crypto investors did not pay taxes in 2022 has generated significant attention, the accuracy of this figure remains in question due to potential flaws in the methodology used.
Nevertheless, it serves as a reminder that governments worldwide are increasing their efforts to ensure tax compliance in the rapidly expanding cryptocurrency market.
As a result, investors must educate themselves on their tax obligations and seek professional advice when necessary to avoid potential legal and financial consequences.
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