UK digital services tax “detrimental” for the crypto sector, says industry executive
A current update has been made on Her Majesty’s Revenue and Customs (HMRC) regulations wherein it has introduced a digital services tax that would be levied on all crypto exchanges operating within the United Kingdom.
Now onwards, crypto exchanges in the UK would now be required to a 2 per cent digital services tax. Britain’s tax authority, the HMRC, at present does not recognize digital assets as financial instruments, which is why exchanges are not eligible for financial exemptions.
On November 28, the authority had announced the inclusion of crypto exchanges under the Treasury’s tech tax. The digital services tax on revenue had originally been introduced in April 2020, with particularly social media and search giants like Google and Facebook as its target.
The latest blow to crypto exchanges has come in the form of HMRC’s classification of crypto assets, where the regulator explained that among a wide variety of crypto assets, are their distinct characteristics. It said so to differentiate it from commodities money or financial contracts, saying that it would be “unlikely” that crypto-asset exchanges could reap benefits from the exemption for online financial marketplaces.
According to CryptoUK, which is the trade body representing the digital asset sector in Britain, the new tax is “unfair”, which is possibly going to be passed on to traders and investors.
Ian Taylor, the Executive Director, has stated that treating cryptocurrencies differently in comparison to financial instruments like stocks or commodities is “detrimental” to the industry.
He also added that the tax is, in fact, a “heavy blow” to the crypto industry after an arduous licensing system was introduced by the Financial Conduct Authority (FCA) for all exchanges.
Since January 2021, all UK-based crypto-asset firms have been compelled to show compliance with AML (anti-money laundering) regulations and record their registration with FCA.
The regulator had imposed a ban on crypto derivatives in January, and then in June, while the FCA sent warnings to consumers against 111 crypto firms that hadn’t registered with it.
In April, it was reported that the HMRC was ramping up its efforts for snaring crypto tax evaders and had introduced explicit demands regarding details of digital asset holdings through self-assessment forms.
In August 2019, Britain’s tax authorities had also reportedly demanded that several crypto-asset exchanges should hand over details on customers from transactions and holdings.