Russia Advances Cryptocurrency Tax Bill, Aims to Generate $521 Million Annually

The Russian government has taken a significant step by advancing a new bill to tax cryptocurrency operations. This decision was made on November 11, as reported by the Russian newspaper Izvestia. The new tax framework comes after the introduction of mining regulations that started on November 1.

This legislation, which was initially drafted in 2020, classifies cryptocurrency as property. It sets clear tax requirements for both individual and corporate miners. Companies must register with the Federal Tax Service to mine legally. On the other hand, individuals can mine without registration as long as their energy consumption stays below 6,000 kilowatt-hours a month. That’s about six times the average energy use of a typical Russian household.

The law creates a two-part tax system. For individuals, there’s a personal income tax, while businesses face a corporate profit tax. This framework also applies to small businesses and self-employed individuals, who must register with tax authorities.

Mining operations will follow a two-stage taxation model. In the first stage, companies pay tax when cryptocurrency arrives in their wallets. The tax base is calculated using the closing prices from major exchanges on the deposit date. Companies can choose which exchange price to use, and all foreign currency values must be converted to rubles at the Central Bank’s official rate.

During the second stage, when companies sell cryptocurrency, they will pay additional tax if the sale price is higher than the initial taxed value. If the price drops, they can claim those losses. To prevent tax evasion, the law sets a minimum taxable value at 80% of the market price. This means any increase in bitcoin price from mining to selling will be taxed.

Starting in 2024, individual traders and miners will face a progressive tax rate between 13% and 22% for annual incomes over 2.4 million rubles. The corporate tax rate will rise to 25% in 2025.

Companies can lower their taxable base by documenting operational costs. This includes expenses for electricity, mining equipment, maintenance, facility rentals, and employee salaries. It's important to note that the tax base for mining operations is separate from other business activities, which requires distinct accounting and reporting.

Tax authorities now have the power to request bank statements for crypto-related accounts if they suspect any violations. Regulators will also monitor crypto-to-fiat transactions through banks.

Mining infrastructure operators must report all service data to the Federal Tax Service. There’s a fine of 40,000 rubles (about $417) for missing deadlines or failing to report. This oversight extends beyond individual miners to include hosting providers and mining pools.

Interestingly, crypto operations will not face value-added tax (VAT). The government has rejected earlier proposals for taxing electricity consumption through special excise taxes on energy used for mining.

According to estimates from the Industrial Mining Association, these new tax measures could generate about 50 billion rubles ($521 million) annually. However, industry representatives argue that taxable income should only be recognized when cryptocurrency is sold, not at the time of mining. They express concerns about making investments attractive.

Bitcoin’s decentralized nature continues to benefit countries around the world. For example, Bhutan, with a population of only 800,000, has generated $750 million through bitcoin mining using green energy. El Salvador is looking to leverage bitcoin to tackle its national debt, while the U.S. is considering building a strategic bitcoin reserve.

The global race for bitcoin adoption is heating up. Russia’s new framework, while focused on generating revenue, is just one part of the broader cryptocurrency regulation landscape. Deeper integration of bitcoin into everyday economic life could lead to returns far greater than tax revenues alone. This impact could be comparable to the economic effect of adopting the Internet.

No government can control or weaponize bitcoin for political purposes. This unique feature makes it particularly valuable in today’s geopolitical environment.

As countries compete for the economic advantages of bitcoin, those that take bold steps towards practical implementation may find themselves leading a transforming global financial system.