Opinions within the mining market regarding the tax rates proposed by the State Duma on their activities were divided. Some called the personal income tax (NDFL) at 15% and the profit tax at 6% adequate; others believed the rates should be unified.
According to Artem Shtanov, EMCD’s product director, any prudent regulation and taxation would benefit both the state and the industry.
“Market participants currently need only transparent rules of the game to develop further. Put simply, a miner wants to know how to continue operating without breaking the law,” the expert said.
Shtanov noted that the numbers above can be discussed only abstractly, as they are not codified by law. Nevertheless, he called the tax terms advantageous for mining companies, given that the current profit tax in Russia stands at 20%.
Roman Nekrasov, co-founder of ENCRY Foundation, regards the difference between taxes for industrial miners and individuals as fundamentally incorrect. However, the main issue, he says, will be the discussion of how to calculate the tax base:
“It remains unclear how expenses incurred by miners in mining cryptocurrencies will be accounted for, and which documents will help prove these costs.”
For example, Nekrasov noted that for importing ASIC miners from China the equipment owner will have to pay for logistics and customs clearance. Also, the costs for buying or renting premises for the farm, installing an air cooling system, paying for service, and electricity fall on them. At the same time, a miner is not obliged to sell the mined bitcoins in the same year.
“Will a miner be able to reduce the tax base by the expenses he incurred when setting up the farm, or only by those expenses incurred in the same tax period when the coins were sold? Or do Russian lawmakers think that mining is money from thin air and miners’ incomes are so fantastically large that reducing the tax base by expenses is unnecessary?” Nekrasov asked.
Due to Rosfinmonitoring’s lack of tools to track withdrawals of mined bitcoins in Russia, stepping out of the shadows remains voluntary, he added. The expert suggested authorities focus on finding favorable conditions and regimes for miners rather than prohibitive methods.
Meanwhile, Andrey Zabuga, partner of international operator of data-centers for mining cryptocurrency BWC UG, is convinced Rosfinmonitoring will not have difficulties setting up infrastructure to monitor withdrawals of bitcoins owned by miners.
“I saw their technical assignment for developing monitoring. They considered all details,” he said.
Zabuga called the proposed tax rates adequate. He believes that the profit calculation should start from the moment cryptocurrencies convert to fiat.
“If crypto is cashed out through third, fourth parties, miners will not bear tax liability. But ultimately all the crypto miners receive is converted to fiat. This is especially relevant for Russia, because there is nowhere to spend cryptocurrencies,” he explained.
Since January 1, 2021, Russia has a law “On Digital Financial Assets.” It recognises cryptocurrencies as property and prohibits using them to pay for goods and services on the territory of the country.
Regarding potential outflow of cryptocurrency from Russia Zabuga stated that miners will still have to pay the tax—“if not in Russia, then in another jurisdiction.”
Andrey Loboda, PR director of BitRiver, assessed the current approach of Russian authorities as “balanced and reasonable.” To minimise administration difficulties he recommended regulators to establish closer cooperation with industry players.
Evgeny Vlasov, head of Comino, believes that it is impossible to set up the infrastructure to track withdrawals of bitcoins.
“The only thing you can tax is bank accounts because they are transparent to tax authorities. Until the money is there, no one can trace assets in cryptocurrencies. Nowadays many settle transactions in crypto precisely to avoid tax problems,” the expert said.
In his view, only a unified tax rate, as well as transparent and convenient operating conditions, could bring mining out of the shadows. He added that in the crypto market the state has rather limited levers of influence.
“Miners may stay in the shadows or move abroad. This segment of business cannot be forced; you can only negotiate with it,” emphasised Vlasov.
Vadim Krutov, executive director of Bitfury Group, believes Russia has unique prerequisites for the development of the mining sector. However, regulatory uncertainty drives Russian investors to invest in overseas projects, creating jobs and increasing GDP in other countries.
The proposed tax rates, he says, do not look high against other jurisdictions. For comparison, in the US and Canada, depending on the state and various incentives, corporate profit tax stands at 21–38%.
“Annual investment in the mining sector in the United States runs into billions of dollars. The country’s risk level in Russia is considered higher, so it is quite reasonable to offer more attractive tax terms — giving large capital enough incentives to choose Russia,” Krutov said.
One of the regulator’s tasks is the challenge of “landing” incomes in Russia. The expert notes that today operations are often structured using foreign jurisdictions that report most profits, while the tax base in Russia remains minimal. The Kazakh regulator, for example, leans toward a lump-sum taxation mechanism for the industry.
“In the United States, where tax-averse approaches to structuring operations are punished very strictly, and the judiciary is considered objective and impartial, miners prefer to disclose income fully. Accordingly, for US tax authorities the problem of identifying the tax base is less acute. Russia must analyse foreign experience, conduct a thorough assessment of the situation and choose the optimal mechanism,” commented a Bitfury Group executive.
Earlier, the Bank of Russia’s desire to completely ban mining on the country’s territory did not receive support from experts. All of the regulator’s arguments they called groundless.
At present, the consolidated position of the authorities is that mining should become the subject of regulation. The Russian government will prepare the corresponding scenarios by February 11.
According to the proposal of the head of the Industry Committee of the State Duma, Vladimir Gutenev, personal income tax on the withdrawal of cryptocurrencies into fiat cannot be less than 15%, and the minimum rate of tax on profits of mining companies and individual entrepreneurs should be at least 6%.
Analysts estimate that even under a simplified taxation system the amount of taxes collected from the Russian crypto market could amount to up to 1 trillion rubles per year.
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