Digital currencies could erode tax profits, says head of Russian tax agency

Digital currencies pose a unique threat to Russia’s tax activities, according to the head of the country’s tax agency. In an interview, he said his agency closely monitors digital currency activities for tax evaders, but acknowledged that digital currency users are easy to follow because they leave an immutable digital footprint on the blockchain.

Russia has banned digital currencies as a form of payment, but allowed citizens to hold them as an asset. The law of the land considers digital currencies to be taxable property.

In an interview with Russian media conglomerate RBC Group, Daniil Egorov, head of Russia’s Federal Tax Service, revealed that digital currencies are one of the areas of his agency’s concern.

“We are monitoring this market closely and understand that this payment system can significantly erode the tax base,” he told the outlet.

The Tax Service, which succeeded the Ministry of Taxes and Taxes in 2004, seeks to be proactive in finding a solution that definitively curbs tax evasion in digital currency.

Russia would not be the first country to seek to tackle alleged tax evasion through digital currencies or increase taxes in the sector. In the United States, the Biden administration passed the Infrastructure Bill which seeks to raise taxes in the sector.

In a report, the US Treasury said, “Cryptocurrency already poses a significant detection problem by facilitating illegal activity, including tax evasion. “

Egorov insisted that the Russian tax agency has put in place structures to keep pace with the digital currency industry.

“If we are talking about cryptocurrencies, then we are now quite closely engaged in this market, realizing that this system of computation can create quite a significant erosion of the tax base,” he told RBC.

And while he called Bitcoin a tax filing loophole, he admitted that it was easy to track tax evaders on the blockchain. Thanks to its immutability, blockchain makes it easier for law enforcement authorities to track money and link those transactions to individuals using blockchain forensic tools.

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Esther L. Steinbach