Despite the ban: will China introduce crypto taxes?2 min read
China has banned and prosecuted the crypto industry in recent years. This tough course could soon be over. According to crypto blogger WuBlockchain Local tax authorities are levying 20 percent income taxes on crypto profits from various bitcoin miners, whales and other investors.
So far it’s only been a case-by-case basis. Tron CEO Justin Sun sees however, already a “big step” towards national tax regulation for the Chinese crypto sector. In fact, China may be about to reverse its crypto policy.
Corona as driver for turnaround
Because the corona pandemic hit the economy of the Middle Kingdom particularly hard. A month-long lockdown as part of the “ZeroCovid” strategy brought enormous losses to economic growth. As a result, they fell Tax revenues in the first half of 2022 by almost 12 percent compared to the same period of the previous year. The introduction of a national crypto tax on transactions and mining could offer China new sources of revenue.
China: Mining activity and crypto transactions remain high
Because China remained a sought-after location for the industry even after the crypto ban. The government’s restrictive approach led to an exodus of many digital bitcoin miners – primarily to the USA. Cambridge University figures show, however, that China still contributes a large share to the global hash rate. The reason: low energy prices. Many miners mine in secret by plugging their devices into hydroelectric power plants or data centers.
In terms of transactions, too, China remains in the top ranks. According to the South China Morning Post, the crypto transaction volume was $220 billion between June 2021 and July 2022. Out bankruptcy documents by FTX reveals that Chinese investors accounted for the third largest customer share (8 percent) at the insolvent crypto exchange.
In addition, China is opening up to other crypto themes such as the Metaverse or NFTs. A court classified the latter as virtual property in December last year. A little later, the country opened a state platform for trading digital collectibles.
Hong Kong as a blueprint?
How an opening in China for crypto could look like can currently be seen in Hong Kong. The special administrative zone has continued to tighten the thumbscrews for companies and projects in recent years, also because China has increased the pressure on the financial center. However, in October 2022, the government changed strategy. The Ministry of Finance announced a greater opening to “virtual values”. As of March 2023, crypto trading could be legalized in Hong Kong.
In fact, Beijing wants to continue promoting the adoption of its own CBDC, the digital renminbi. The country’s flagship project allows fast payments while being overseen by the People’s Bank of China. Opening up to cryptocurrencies would offer citizens decentralized alternatives like bitcoin. And thus jeopardize your own plans.
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