Did Spain introduce crypto taxes to limit market participation?

Back in November 2018, which wasn’t too long ago, Spain started to actively search for local cryptocurrency traders for imposing its new tax laws as the passive approach didn’t do too much in terms of results.

More than 10,000 crypto traders in Spain were to be subject to inspection and determination of their due tax rates.

Soon after the initiation of this taxing law, the Bank of Spain started to warn its citizens about participating in the cryptocurrency market, due to uncertainties in the regulatory framework.

Rumors started to circulate that the Spanish government was trying to limit cryptocurrency trading activities as much as possible as they were still developing their sandbox, from the beginning of July 2018.

Did the new laws actually work? Was the Spanish population driven away from digital currencies? Well, not particularly.

The result of the regulations

The aftermath of the regulation was definitely not something the government was aiming at. In fact, the result was the opposite.

Every time the Spanish government made a move towards cryptocurrencies, be it the introduction of the regulatory framework in July 2018, or the initiation of the tax laws in November 2018, the search rates for “Comprar Bitcoin”, which means “buy bitcoin” in Spanish, shot up by large margins right after those announcements were made.

Even when the Bank of Spain warned the population about the potential risk when handling cryptocurrencies, search rates still remained unchanged and then rapidly sky-rocketed when the newest Bitcoin bull rush started.

Why would the government want to limit participation?

One of the key reasons why Spain would encourage less participation in the market is due to the lack of a proper regulatory framework.

Not having regulation, prevents the government from introducing a state-backed taxing law, which they did regardless in November. Therefore they needed to quickly draft something to justify the tax unless it was justified the crypto traders could simply not file their tax reports and not face any legal repercussions.

Would the taxes be worth it?

In the grand scheme of things, nearly all crypto taxation laws have fallen on their face every time they were introduced in a country. The reason is the predominantly anonymous nature of Bitcoin transactions, which is quite a hassle to trace back to an individual, especially if they’re registered with a foreign entity.

Therefore, the government would have to direct at least some kind of manpower and funds to enforce the law, which would still not yield 100% of the expected amount due to too many backdoors in the financial system for traders to hide their transaction histories.

Many experts have come out with suggestions that the tax simply shouldn’t exist. It will save a lot of manpower to direct to the money-laundering prevention agencies, prevent funds from being wasted on a flawed process and encourage consumer purchasing power.

The Spanish culture of spending any surplus money on daily necessities would be reinforced through extra income generated from crypto trades. This would prompt consumers to spend more, simply due to the fact that there are more funds available.

This would subsequently help local companies grow, and therefore provide much more funds in terms of corporate tax to the government. In a sense, by removing the crypto tax regulation, the government would have access to 100% of the designated funds it wanted to get from crypto tax while leaving it active would simply diminish its resources in both manpower and money available for funding local agencies against money-laundering cases.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.