China Starts Taxing Crypto Investors and Bitcoin Miners 20%

China has long had a complicated relationship with the cryptocurrency industry, and its government has been hesitant on policies that have ranged from an outright ban to examining the utility of blockchain. Recently, some local governments have started imposing a hefty income tax on cryptocurrencies.

In particular, a number of crypto whales, miners and other investors said they were undergoing audits by their local tax departments regarding personal income tax starting in early 2022 and are still awaiting the results, Colin Wu reported on January 25.

According to the report, this represents the introduction of a 20% personal income tax on investment profits or individual cryptocurrency investors and many Bitcoin (BTC) miners after several major domestic exchanges handed over extensive information about some of the whales’ transactions to the tax authorities.

A different take on digital assets

While this practice would imply that the Chinese government may have finally recognized the legal status of cryptocurrencies, the reality is more complex, as tax and financial authorities have different views on the legality of cryptocurrencies.

In October 2021. China Tax Newsbranch of the State Administration of Taxation, published an article stating that the services previously provided by overseas stock exchanges to Chinese residents “were not expressly prohibited by law,” but the imposition of VAT, corporate income tax, stamp duty and other related taxes on the income they receive from China.

At the same time, China has strict restrictions on illegal financial activities in the form of digital currencies, but, within its current legal framework, does not prohibit individuals from holding things like Bitcoin, with trading in virtual currencies defined as an “illegal civil act” but not specifically prohibited by law.

On the other hand, a November 2022 article in the China Public Prosecutor’s Journal noted that the government has tightened its oversight of digital assets such as Bitcoin in recent years, citing significant financial risks associated with them.

The tax department has its own tax base, according to a senior tax expert, as tax audits on whales have become more stringent and tax authorities have recently launched investigations into the overseas income of wealthy individuals.

China Complex Crypto Connection

More than nine years ago, China began restricting the use of cryptocurrencies, primarily Bitcoin, by the country’s banks, but has since unwittingly become a silent crypto whale, thanks in part to its restrictive measures, and is ranked as one of the top ten countries in crypto adoption .

Interestingly, FTX’s bankruptcy filing recently also revealed that mainland China accounted for the third largest share of the crypto exchange’s customers, second only to island tax havens such as the Cayman Islands and the Virgin Islands.

In fact, China’s crypto holdings, a result of the confiscation of large amounts of Bitcoin and Ethereum (ETH) from the Plus Token scheme in 2019, are so huge that the country could bring down the entire crypto market in seconds if it chose to.

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