Israeli gov’t seeks to track crypto holdings above $61K

Framed as a “war against black capital,” Israel’s Ministry of Finance estimates the new legislation could bring in $9.2 million in additional state revenues through tax.

The Israeli government is ratcheting up its efforts to deter tax evasion and close loopholes for would-be money launderers as part of a “war against black capital.” Among the measures outlined in a new draft bill published by the Ministry of Finance this week, a new statutory requirement is being proposed to place cryptocurrency users under increased scrutiny.

The proposed law would make it mandatory for cryptocurrency users who have either purchased 200,000 Israeli shekels ($61,000) worth of cryptocurrency or whose crypto holdings are currently worth the same amount and above to file a report with the Israeli tax authorities.

This reporting obligation would apply to any Israeli citizen who has held, personally or on behalf of a child under 18, cryptocurrency worth this amount or above on one or more days of the tax year. The bill states that:

“Virtual currencies have become commonplace among the public, and they are practically traded as an asset on exchanges. Digital coins can be subdivided into small units, transferred relatively easily by electronic means, and are not subject to surveillance or inspection. In these circumstances, virtual currency is a convenient and effective means of concealing income, accumulating undeclared assets and money laundering.”

If approved, the introduction of this measure would raise state revenues by an estimated 30 million shekels ($9.2 million) in 2022 through additional tax.

According to a report from Israeli business newspaper TheMarker, Meni Rosenfeld, chairman of the Israeli Bitcoin Association, wrote a letter to Israeli Tax Authority head Eran Yaacov earlier this week. He argued that the extensive reporting obligation would create a database of Bitcoin (BTC) holders — something unprecedented compared with any other asset.

Rosenfeld further argued that due to the price volatility of digital assets, crypto investors could qualify for a reporting obligation one month and then soon after falling below the threshold. He wrote that the decision to hastily make this amendment to the law without any dialogue nor understanding of its implications drastically impairs investors’ rights to a hearing and compromises the effectiveness of the proposed legislation. 

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Israeli daily Globes also cited Rosenfeld’s objection that the law would unduly discriminate against Bitcoin holders, as well as frame them as “potential criminals.” In his view, the proposed measures go against the grain of easing access to the digital economy more broadly, a market that already faces significant regulatory challenges.

Tax lawyer Itay Bracha told Globes the law was “another aggressive step taken by the authorities towards becoming a ‘Big Brother.’ The decision makes it clear that the state does not trust taxpayers to report and pay what they properly owe.” Bracha also noted that reporting obligations are not mandatory in Israel for investors who trade stocks or other assets, despite the classificatory equivalence between them and cryptocurrencies.