Work on a bill to regulate cryptocurrency taxation in Russia has resumed, four years after the first version was introduced. The new draft has sparked mixed reactions in the crypto community. While some lawyers and experts view it as a step in the right direction, others doubt its effectiveness and ability to encourage innovation. Many in the industry are particularly concerned about high tax rates, which they fear could deter investors and hinder the sector’s growth.

Legalization with Caution

According to Vladimir Sobinsky, a lawyer at DRC, clearer regulation of cryptocurrency operations in Russia could resolve the ongoing uncertainty around Bitcoin-related taxes. Currently, individuals and businesses are unsure how to declare income from cryptocurrency transactions.

“We see market participants wanting to disclose their income and act legally by paying taxes. The state should aim to legalize this willingness among taxpayers,” Sobinsky noted.

However, Sobinsky warned that imposing high tax rates might lead individuals to conceal their income, especially in the cryptocurrency space, where technical opportunities for doing so are readily available.

“Standard corporate rates (20%) are not particularly appealing, especially with additional capital gains taxes. Creating a favorable regulatory environment is essential, and nothing stimulates innovation better than preferential tax policies,” he concluded.

A Two-Stage System for Miners

Eduard Davydov, senior partner at Emet Law, suggested a fairer two-stage taxation system for miners. Initially, income from mining would be declared as property, and later, upon selling cryptocurrency, tax would be levied on the difference between the selling price and the asset’s initial value.

“Such an approach would be fair if taxpayers could deduct mining costs,” Davydov explained, emphasizing the need for clear guidelines from tax authorities on how these costs should be accounted for.

Changes in the Bill

The initial draft of the bill was introduced between 2020 and 2021, alongside the adoption of the “On Digital Financial Assets” law, which regulates cryptocurrency transactions. Since then, frameworks for regulating Bitcoin exchanges and crypto operators have been established, but comprehensive regulation remains absent.

Andrey Tugarin, founder of GMT Legal, highlighted that the new bill does not change the taxation rules for individuals, which were already addressed in 2021. However, it introduces two new reporting requirements for individuals and businesses:

Notification of acquiring rights to manage digital currencies, including through third parties.
Reporting on digital currency transactions and balances.

Additionally, the bill proposes that the Federal Tax Service (FNS) will determine the market price of cryptocurrencies, a critical factor for miners whose data will be included in a new registry.

“This bill will clearly impact miners and participants in experimental legal regimes, as reporting mechanisms will be necessary,” Tugarin emphasized.

Implementation Challenges

Sergey Mendeleev, CEO of Exved, expressed skepticism about the practical implementation of the proposed measures. He pointed out that Russia currently lacks cryptocurrency exchanges and operators strictly adhering to domestic regulations, making it difficult to monitor transactions.

“How taxes can be paid on operations involving accounts of numerous intermediaries used by crypto traders is beyond me,” Mendeleev stated.

He also questioned the feasibility of the expected annual tax revenues of 50 billion rubles, given the current volume of Bitcoin mining in Russia.

“The value of all Bitcoin potentially mined annually using Russian electricity networks is about $2 billion, with production costs ranging from 50% to 80% of this amount. Extracting 25% in taxes from this is unrealistic,” he added.

Conclusion

The cryptocurrency taxation bill continues to provoke debate among experts and market participants. While positive elements, such as the introduction of reporting mechanisms and mining regulation, are acknowledged, many believe that high tax burdens and implementation challenges could negatively impact the development of the cryptocurrency industry in Russia.