06 Nov
06Nov

Israel's State Comptroller, Matanyahu Englman, has sharply criticized the Tax Authority for its failure to strengthen efforts to collect taxes on cryptocurrency transactions, highlighting a significant gap in the country's tax collection capabilities. This comes amid rising debt and the ongoing impact of war on Israel’s economy.

A report from Israel’s leading financial newspaper, Globes, revealed that Israel could have potentially collected 3 billion New Israeli Shekels (NIS), equivalent to approximately $800 million in taxes, had the Tax Authority more effectively managed crypto tax reporting. Englman urged the government to find ways to capture taxes from the crypto sector rather than increasing public taxes, particularly as Israel's national debt continues to rise.

Concerning Findings on Crypto Tax Reporting

An examination conducted by the State Comptroller covering the years 2018 to 2022 revealed worrying trends in Israel’s handling of crypto taxation. The report found that, on average, the Tax Authority was notified of only 500 cryptocurrency transactions annually, a figure that sharply contrasts with the estimated number of crypto wallet owners, which ranges from 200,000 to 1.7 million individuals. This suggests that just 0.25% of crypto transactions are being reported to tax authorities, indicating significant under-reporting and a failure to capture the full extent of the crypto market.

The lack of proper reporting leaves a substantial amount of potential tax revenue untapped, which could be critical to the country’s finances, particularly as Israel grapples with the financial costs associated with ongoing geopolitical tensions and war.

Minimal Guidance on Crypto Taxation

The report also criticized the Tax Authority’s minimal efforts to regulate the crypto sector. Since 2018, the authority has issued only three documents related to crypto taxation, none of which have been updated to reflect the sector’s rapid evolution. As a result, the rules in place remain outdated and insufficient for a market that has expanded significantly in recent years.

Currently, Israel treats cryptocurrencies as assets, subjecting them to capital gains tax and other fiscal obligations. However, the lack of updated guidance and tax reporting mechanisms has left many in the crypto community unclear about their tax responsibilities, leading to widespread non-compliance.

Israel’s Efforts to Combat Terrorism Financing Through Crypto

Alongside these concerns over crypto tax compliance, Israel has also taken a firm stance against the use of cryptocurrencies for terrorism financing. The National Bureau for Counter Terror Financing (NBCTF) has made substantial efforts to crack down on the use of crypto by terrorist organizations, particularly in relation to groups such as Hamas, Palestinian Islamic Jihad (PIJ), and Hezbollah.

Israeli authorities have seized numerous crypto accounts linked to these groups, with an increasing focus on transactions conducted through global exchanges like Binance. Last year, Israel’s security services uncovered a significant crypto funding network used by these organizations to finance attacks, seizing millions of dollars' worth of cryptocurrency in the process.

These efforts to combat terrorism financing through digital currencies highlight the growing importance of tracking and regulating crypto transactions, not just for tax purposes, but also for national security reasons. The ability to trace crypto transactions and seize illicit funds has become a critical tool in Israel’s broader strategy to counteract terrorism financing.

Conclusion

The recent report by Israel’s State Comptroller underscores the need for more robust regulation and enforcement of crypto tax collection in the country. With the growing use of digital assets and the potential revenue they represent, Israel must modernize its crypto tax framework to avoid further losses in tax revenue.

At the same time, Israel’s strong measures against terrorism financing using cryptocurrencies show the country’s commitment to leveraging blockchain analysis and other tools to track and prevent the use of crypto for illegal activities.

The balance between fostering a thriving crypto market and ensuring compliance with tax and security regulations will be crucial as Israel navigates these challenges in the coming years.

November 2024, Cryptoniteuae

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