New report raises concerns over low tax compliance among crypto investors in 2022

A recent report by Swedish crypto tax firm Divly suggests that only 0.53% of cryptocurrency investors globally paid taxes on their crypto investments in 2022. However, tax experts have criticized the report’s figures and methodology, casting doubt on its accuracy. Divly arrived at its estimate by analyzing the relationship between the number of individuals who declared cryptocurrency in their tax returns and the search volume for crypto tax-related keywords in various countries. The report also used Statista’s Global Cryptocurrency Report to determine the number of crypto holders in each country.

According to the report, Finland had the highest proportion of tax-paying crypto investors in 2022, with 4.09% of crypto investors paying the required taxes. Australia came in second place, with 3.65% of crypto investors paying taxes. The United States ranked 10th on the list, with an estimated 1.62% of crypto holders paying taxes. Meanwhile, India, Indonesia, and the Philippines had the lowest rates of tax-paying crypto investors, with only 0.07%, 0.04%, and 0.03% respectively.

99.5% of crypto investors did not pay taxes
99.5% of crypto investors did not pay taxes

However, experts have criticized the report’s methodology, stating that it may not be a reliable indicator of tax compliance. They suggest that many crypto investors may be paying taxes without disclosing their crypto holdings or using offshore accounts to evade taxes altogether. Therefore, while the Divly report sheds light on tax compliance in the cryptocurrency market, it may not provide a complete picture of the situation.

The methodology used in the Divly report has been questioned by experts, as it may not accurately reflect the number of crypto taxpayers. The report admits that search volume data may not be a reliable indicator of tax compliance, as not all taxpayers search for crypto tax-related information online. Additionally, the report assumes that the number of searches related to crypto tax reporting is consistent across all countries, which may not be accurate.

Danny Talwar, global head of tax at crypto tax software Koinly, disputes the report’s claim that only 0.53% of crypto investors paid taxes in 2022, suggesting that countries with specific crypto tax guidance and strict compliance requirements, such as the USA, Canada, Australia, and India, are likely to have higher rates of tax compliance.

Similarly, Greg Valles, a board member of Blockchain Australia and a chartered accountant, cannot confirm the accuracy of the report’s methodology. Nevertheless, both experts note that government data matching and surveillance efforts make it increasingly difficult to evade crypto taxes. Therefore, while the Divly report sheds some light on tax compliance in the crypto market, it may not provide a complete or accurate picture.

Valles pointed out that as government technology becomes more sophisticated and specialized, it will become easier to detect non-compliance in the crypto market. He warned that those who do not report their crypto profits now risk being caught in the future.

Talwar emphasized that although the risk of non-compliance is higher for crypto than for other asset classes, many tax authorities have processes in place to obtain data from crypto exchanges. He added that Koinly has observed a significant increase in awareness of crypto tax reporting duties among investors in these jurisdictions, with only 15% of surveyed investors being unaware of their tax obligations.

Overall, it is important for crypto investors to understand and comply with their tax obligations, as non-compliance may result in penalties, fines, or legal action. While the Divly report provides some insight into tax compliance in the crypto market, it may not be entirely accurate, and investors should seek professional advice on their tax obligations.

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