Russia Approves Potential Tax Exemption for Issuers of Digital Assets

While Russia is considering legislation that would prohibit the use of Bitcoin as a payment mechanism, others are proposing less stringent taxation of its distribution.

Russian legislators recently passed a draft law that might exempt digital asset issuers from paying value-added tax. It has also imposed new tax rates on income derived from the sale of such assets.

According to Reuters, the draft bill was passed by members of Russia’s State Duma (federal assembly) on Tuesday after second and third readings. It will purportedly apply value-added tax exemptions to both digital asset issuers and “information systems operators” who help in their issuance.

Value-added taxes are levied on commodities based on how much their value has risen at each stage of manufacturing. According to the Inter-American Centre of Tax Administrations, as of 2020, nearly no countries imposed a VAT tax on the trade of virtual currencies.

In terms of income tax payments, the current tax rate on cryptocurrency in Russia is 20%, which is in line with other standard assets. However, the draft law would cut this tax to 13% for Russian enterprises and 15% for others.

To become law, the bill must be signed by both the upper house and President Vladimir Putin.

Russia’s stance on cryptocurrency remains ambiguous. Regional governments appear to have differing perspectives on digital assets.

In January, Russia’s central bank advocated a total ban on cryptocurrencies, citing financial stability concerns and comparing them to “pyramid schemes” and challenges to national monetary policy. However, the Ministry of Finance quickly rejected this strategy, deciding that regulation was a superior solution.

Having said that, the state has already concluded its first reading of a measure that would prohibit the use of digital assets for payment purposes. The central bank appears to believe that cryptocurrency can be beneficial to foreign trade but not to citizens.

The former is becoming increasingly popular. In March, a member of the State Duma claimed that Russia would start accepting Bitcoin for international oil payments.

This came just weeks after Russia was thrown out of the SWIFT payments system and saw $600 billion of its foreign exchange reserves seized by western countries. Some notable experts, including former BitMEX CEO Arthur Hayes and investor Bill Miller, predicted that Russia’s interest in Bitcoin would be optimistic.

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