The United Nations Conference on Trade and Development (UNCTAD) published another policy brief on cryptocurrencies on Wednesday focused on the regulation of cryptos. Together, they provide a thorough analysis of the hazards that cryptocurrency poses for developing countries and possible solutions to those risks.
UNCTAD policy indicates that cryptos hinder domestic mobilization of resources
The July-dated but recently published UNCTAD Policy Brief No. 102 makes the case that while cryptocurrencies can help with remittances and promote financial inclusion, they can also hinder the mobilization of domestic resources in developing countries by facilitating tax evasion by masking the ownership of capital inflows and sending them abroad.
The brief’s authors stated, “Cryptocurrencies share all the characteristics of traditional tax havens — the pseudonymity of accounts, and insufficient fiscal oversight or weak enforcement.”
The majority of developing nations do not have tax laws that apply to cryptocurrencies, and the absence of a third-party reporting mechanism makes it simple to conceal cryptocurrency holdings, according to the brief.
The brief stated that Contrary to the commonly held view that cryptos do not require any intermediaries and instead operate through automated guidelines, there are a wide variety of service providers, such as crypto exchanges, digital wallets, and decentralized finance (DeFi) platforms, that permit the use and holding of cryptocurrencies. Such service providers may help with better tax reporting once they are regulated.
Emerging economies should introduce regulations enhancing reporting.
The brief urges emerging nations to specify cryptocurrency’s legal standing and impose reporting obligations on cryptocurrency service providers. A “global tax cryptocurrency regulation” and a mechanism for exchanging information about bitcoin holdings and trading are also suggested. The brief emphasized that higher taxation on cryptocurrencies in comparison to conventional assets will deter owning them and utilizing them for transactions.
The UNCTAD Policy Brief 100 acknowledged that crypto regulation is fundamentally necessary for developing nations where service providers are concentrated, but it also suggested a number of stringent policies in developing nations to address “considerable costs and risks related to national monetary sovereignty, policy space, and macroeconomic stability.