If cryptocurrencies are a new asset class, one would expect to tax trading profits, but India has already shown that a heavy hand can ward off innovative companies in the industry. Could the Philippines be next?
Ferdinand Marcos Jr. won the presidential election in the Philippines last month and is expected to install his new government on June 30. One of the items on the agenda of the new administration is the review of tax policies.
The Philippines Ministry of Finance last week outlined a tax strategy to generate revenue to help pay off 3.2 trillion pesos ($61 billion) in debt related to the fight against the Covid-19 pandemic. Among other things, he calls for new taxes on cryptocurrency by 2024, raising fears that Manila will learn lessons from India, which on April 1 imposed a flat tax of 30% on all income. of crypto.
If the Philippines follows India’s crypto model, “it will kill the industry,” said Emman Navalan, chief executive of Tetrix Network, a Philippine blockchain platform.
Navalan said he had no problem with the tax overhaul and that big companies in the crypto world, such as stock exchanges Binance and Coinbase, welcomed clearer regulations.
That’s because “they know it’s going to pave the way for even more mainstream adoption,” he said in an interview with Forkast.
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cash in hand
Admittedly, the tax package proposed by the Philippines does not define any fixed tax rate on crypto, only stating that in the face of Covid-related debt, the overall measures will be “fair” and cover the digital space, where taxation the laws need to catch up.
When asked for details on the envisioned crypto tax rates, a spokesperson for the Ministry of Finance declined to elaborate.
“We cannot give you details of your questions, as these questions will be considered by the new administration,” the official said.
These are weighty considerations. The new government will inherit debt that hit a record 12.68 trillion pesos ($242 billion) in March, according to government figures, or around 63% of GDP, the highest in 17 years.
However, Benjamin E. Diokno, the current head of the Philippines’ central bank who will lead the finance ministry in the Marcos Jr. administration, said the country should focus on growth, not raising taxes.
He told the ABS-CBN news channel on May 27 that the country’s debt levels were manageable.
Navalan says tax rates aren’t the only key to paying off debt, tax collection is, and welcoming crypto as a promising new asset class, instead of punishing the industry , is a better approach.
“Because at the end of the day, it’s all about the collection. You can invite more people to participate, that’s right, by being very crypto friendly. At the same time collect the taxes,” he said.
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Brooks Entwistle, chief executive of Ripple, the blockchain-based payment settlement company, said economic recovery will be the priority for new management in the Philippines post-pandemic.
Harnessing the dynamic nature of the crypto industry will require an agile and forward-looking regulatory framework, he said.
“The key therefore lies in the principle ‘same risk, same activity, same treatment’,” he said.
“By ensuring that activities with the same risks are regulated in the same way, we will be better placed to provide the regulatory certainty needed for crypto innovation.”
A Report on Cryptocurrency Adoption Rate by Poll and Survey Site Searcher reports that the Philippines ranks fifth in the world for cryptocurrency ownership, with 28% of adults in the country reporting holding digital assets.
Bitcoin is most popular in the Philippines at 14%, followed by Bitcoin Cash at 7%, Ripple 5%, Litecoin 5%, and Ethereum 4%.
Finder’s survey covered 42,000 people in 27 countries.
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“The future of cryptocurrency in the Philippines is undeniably bright,” said Amor Maclang, president of innovation at the European Chamber of Commerce in the Philippines. Forkast.
“With government authorities and local businesses at the forefront of the movement, there is growing potential for cryptocurrency exchanges to continue growing locally,” Maclang said.
Maclang said she expects cryptocurrency to have a bigger discussion in the incoming administration, as the new “president is more knowledgeable about the issue than the previous government.”
The other positive angle for digital currencies in the Philippines is the large number of citizens working abroad and sending money back to the country.
This cash flow in the form of remittances represents almost 10% of GDP and reached more than $34 billion in 2020, according to World Bank statistics.
Bangko Sentral ng Pilipinas, the central bank of the Philippines, classifies cryptocurrencies among what it call virtual currencies and notes that remittances using licensed virtual currency exchanges are faster, more convenient and cheaper than traditional remittance services.
Given the size of the remittance amounts, harnessing crypto technology to expand and make the process more efficient could prove attractive to planners in the Marcos Jr. administration looking to revitalize the economy.
“The Philippines is one of the largest remittance-receiving countries in Asia, but traditional remittances today typically involve very high fees,” Ripple’s Entwistle said.
“Crypto has helped disrupt this space, providing much faster and more cost-effective cross-border payment options – ultimately putting more money in people’s pockets.”
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