Crypto Quill

Indonesia, one of the largest economies in Southeast Asia, has seen a sharp decline in its tax revenue from cryptocurrency transactions in 2023, despite the surge in bitcoin prices and adoption. The country’s crypto tax regime, which was introduced in May 2022, has been criticized by local exchanges and industry players for being too high and discouraging innovation.

Crypto Taxes Outweigh Trading Fees

According to the data from the Ministry of Finance, Indonesia collected $31.7 million (Indonesian Rupiah 467.27 billion) from crypto taxes in 2023, a 62% drop from the partial collection period in 2022. The crypto tax revenue was also lower than the revenue from fintech taxes, which amounted to $41.2 million in 2023.

The reason for the low crypto tax revenue is the dual taxation system that applies to crypto transactions in Indonesia. Crypto users have to pay a 0.1% income tax and a 0.11% value-added tax (VAT) on every trade they make on registered platforms. Additionally, local crypto exchanges have to contribute around 0.04% tax to the national crypto bourse.

These taxes often exceed the trading fees charged by the exchanges, which range from 0.1% to 0.3%. This creates a disincentive for crypto users and traders, who may opt for cheaper alternatives such as overseas or illegal exchanges. In fact, the Blockchain Association of Indonesia reported in May 2023 that there were 303 illegal exchanges operating in the country, undermining the formal tax system.

Bitcoin Soars Amid Regulatory Uncertainty

The low crypto tax revenue is in stark contrast to the performance of bitcoin and other cryptocurrencies in 2023. Bitcoin, the largest and most popular cryptocurrency, jumped 159% in 2023, reaching a new all-time high of over $100,000 in December. Other cryptocurrencies, such as ethereum, solana, and cardano, also posted impressive gains, attracting more investors and users to the crypto space.

However, the regulatory environment in Indonesia remains uncertain and unfriendly for crypto enthusiasts. The country’s Financial Services Authority (OJK) has announced that it will regulate crypto as a financial sector from January 2025. This means that crypto exchanges and service providers will have to comply with stricter rules and requirements, such as capital, licensing, governance, and consumer protection.

The OJK’s move has been met with mixed reactions from the crypto industry. Some welcome the regulation as a sign of recognition and legitimacy, while others fear that it will stifle innovation and growth. The local crypto exchanges have also proposed that crypto transactions should only be subject to income tax, not VAT, as they argue that crypto is more like a security than a commodity.

Crypto Tax Evaluation Needed to Balance Revenue and Growth

The Commodity Futures Trading Supervisory Agency (CFTSA), the regulator that oversees crypto trading in Indonesia, has urged the finance ministry to evaluate the crypto tax regime and its impact on the industry. The CFTSA’s head of market development and development bureau, Tirta Karma Senjaya, said that the tax evaluation is necessary because the crypto tax regime has been in place for more than a year and should be reviewed annually.

Senjaya also suggested that the crypto industry should be given enough time to mature and develop before imposing heavy taxes on it. He said that the crypto space is characterized by rapid technological advancements, market volatility, and evolving user behavior, which require a flexible and supportive regulatory approach. He added that the tax regime should balance the interests of the state and the industry, as well as foster sustainable economic development.

Indonesia is not the only country that faces the challenge of taxing crypto transactions. Other countries, such as the US, UK, Australia, and India, have also struggled to find the optimal way to collect revenue from the growing and dynamic crypto sector. The main issues include defining the legal status of crypto, determining the tax base and rate, tracking and reporting transactions, and enforcing compliance. As crypto becomes more mainstream and influential, the need for a clear and fair tax framework becomes more urgent and important.