The proposed Salvadoran project would collect tax revenue in an attractive way that on the surface seems more digestible to investors.
Salvadoran President Nayib Bukele recently presented ambitious plans to build a Bitcoin city at the base of the Conchagua stratovolcano, which overlooks the Gulf of Fonseca.
Dressed in a back-facing baseball cap and button-down shirt, the young president – who identifies himself as the country’s “CEO” on Twitter – suggested the new Alexandria-like city could be funded by government-issued bitcoin-backed bonds with geothermal energy powering the computers. Global media coverage inevitably followed, with several publications insolently comparing Bukele’s plans to those of a James Bond villain.
The first Bitcoin citadel?
Construction on the city is expected to begin in 2022, with half of the $ 1 billion bond raised to be used to buy BTC and the rest to fund energy and bitcoin mining infrastructure. While the idea of ââa crypto citadel is nothing new – Miami Mayor Francis X. Suarez has his own plans – it has captured the public imagination, not least because bitcoin is legal tender in the world. Salvador. Additionally, Bukele revealed that the area is said to be teeming with entertainment venues, bars, restaurants, museums and even an airport.
The most interesting aspect of the story, however, isn’t the volcano, the energy, or even the links. It concerns the government’s plan to simplify the taxation of digital assets by levying a flat-rate 10% value added tax (VAT) to finance construction and city services. In other words, Bitcoin City will be completely free taxes on income, property and capital gains.
Although several countries around the world have earned a reputation for being tax-efficient when it comes to bitcoin and other crypto assets, Bukele went further by promising that El Salvador “will not have income tax, always. No income tax, zero property tax, no purchase tax, zero tourist tax and zero CO2 emissions.
Tomer Ravid, CEO of BloxTax, a cryptocurrency tax and anti-money laundering (AML) platform, said: âThere are many ‘tax-exempt’ regions around the world. In many cases, governments seeking to attract foreign capital investment (FDI) create what is called a âspecial economic zoneâ (SEZ) – so this is not a new practice. The challenge is how to attract foreign investors. Tax breaks are one thing, but an economic zone must attract investment in infrastructure and development. The aim is to create jobs. I’m not sure that offering tax breaks is enough to entice large employers to relocate and set up factories or development centers in El Salvador.
For residents of the new Bitcoin utopia, this means that they could accumulate as much wealth as they want without paying the piper. Of course, they’ll still be taxed on purchases of goods and services as usual, so it’s not exactly free lunch. Nonetheless, Bukele appears to be keen to wrest the crown from Michael Saylor as the world’s largest Bitcoin bull.
Of course, Bitcoin-friendly tax laws aren’t new to the country. Before unveiling Bitcoin City, El Salvador pledged to exempt foreign investors from a tax on profits from bitcoin investments, with the aim of attracting foreign investment. The latest news seems likely to resonate with these same foreign businessmen and innovators, as well as potential utopian citizens in the southeast of the country.
Different points of view
It’s hard to know what to make of Bukele’s plans for a VAT-only system. On the one hand, it could be seen as a better, fairer, and certainly simpler way to tax bitcoin, relieving users and the state of burdensome reporting and investigation obligations. On the other hand, some might argue that by dispensing with the need for annual returns, the government of El Salvador is essentially putting its head in the sand to avoid the complexities (and cost) of properly taxing the tax. cryptography.
Compare Bitcoin City to the United States, for example, where users are expected to report gains and losses on every cryptocurrency transaction, even if their gain or loss is insignificant. And we really mean that every cryptocurrency transaction – sales, conversions, donations, payments – all need to be reported, because the IRS recognizes digital assets as property rather than currency. In fact, Treasury Secretary Janet Yellen wants to go further by imposing a tax on unrealized capital gains. In other words, his earnings in stocks and bitcoin could be taxed even before they have been sold.
Naturally, Bukele’s pro-Bitcoin alternative has been well received by crypto enthusiasts around the world, but the arrangement will ultimately have to work for El Salvador as well. And there is another aspect that many have yet to take into account. If wealthy Bitcoiners flock to Bitcoin City in droves, won’t they become a target for extortionists? Bukele may need to put a ring of steel around his heavenly citadel to keep its citizens safe.
Time will tell if the President’s no-intervention approach turns out to be successful. In the meantime, the opening of the citadel will certainly be one of the biggest stories of the next year.
This is a guest article by Reuben Jackson. The opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.