Crypto profits slip through cracks as Israel lacks tax controls, State Auditor says
Crypto profits slip through cracks as Israel lacks tax controls, State Auditor says
From 2018 to 2022, just 500 crypto transactions were reported instead of the expected 200,000, costing the state billions in tax revenue, according to the State Auditor’s report.
As far as the crypto market is concerned, there is nothing new under the sun: the market remains turbulent, the capital flow is high, the potential is immense, yet regulation seems to be of little interest to anyone.
According to the State Auditor’s report published this week, between 2018 and 2022, the Tax Authority received only 500 reports on crypto transactions. However, the Auditor estimates the minimum reporting potential during this period to be at least 200,000 transactions. In the absence of adequate reporting and regulation, the state loses out on potential tax revenue of between NIS 2 and 3 billion.
Those responsible for this oversight include the Tax Authority and the State Revenue Administration, who, along with the Ministry of Finance, have not yet prepared the necessary memos to amend the Income Tax Ordinance—despite the budget for these initiatives being approved in August 2023. Furthermore, the Tax Authority has not established guidelines for retrospective reporting on crypto transactions, nor has it adjusted reporting requirements to accommodate the unique characteristics of the crypto market, which involves a large volume of transactions. The Authority also lacks the technological tools needed to accurately assess income tax from this sector, despite addressing this issue for over three years.
The State Auditor recommends implementing clear taxation rules, increasing the reporting rate, and realizing the full tax collection potential in this sector.
The Tax Authority responded: "In addressing challenges related to the deposit of crypto funds, the Authority, in collaboration with relevant regulatory bodies, has published a temporary order to facilitate tax collection from profits arising from the liquidation of decentralized payment methods and continues discussions to streamline this process. Additionally, talks are ongoing with commercial banks to identify alternative solutions. The Authority is also working with the ombudsman to publish a voluntary disclosure procedure that will allow individuals to report profits from cryptocurrency transactions. The Tax Authority welcomes the Auditor's in-depth report and is already working to implement its recommendations."
