The Russian government has approved a broad revision of the cryptocurrency tax system. This reflects the state's goal of harmonizing the interests of miners, businesses, and state agencies.
These changes reflect efforts to regulate the growth of the digital currency sector and address economic and infrastructure challenges.
Establishing a tax system and encouraging cryptocurrency mining in some regions
Under the revised law, cryptocurrencies are now classified as property for tax purposes. Income from mining activities is taxed based on the market value of the digital currency at the time of receipt. Specifically, it provides some relief to the capital-intensive industry by allowing the deduction of costs incurred in the mining process.
The government has also clarified that cryptocurrency transactions are exempt from value-added tax (VAT). Instead, the profits from such transactions are included in the same tax base as securities. This limits the personal income tax rate on cryptocurrency-related income to 15%.
"As a result of discussions with businesses, a decision was made on the validity of taxation of financial results from mining. This approach aims to maintain a balance between the interests of businesses and the state," Interfax reported.
This revision comes as the government is tightening control. This is related to the recent law signed by President Vladimir Putin transferring the supervision of the cryptocurrency mining registry to the Federal Tax Service (FNS). Now, industrial miners must register with the FNS. Meanwhile, individual miners operating from homes are exempt if their energy consumption remains below a specified limit.
The FNS has also proposed a controversial two-tier tax system that includes taxes on unrealized gains. While this measure aims to ensure tax compliance, it could complicate miners' operations during market downturns.
In addition to taxes, Russia is facing challenges related to the energy demand of cryptocurrency mining. From November 1, only registered entrepreneurs and organizations will be allowed to mine cryptocurrencies. Individuals are limited to 6,000 kilowatt-hours (kWh) of electricity use per month.
Temporary mining bans are planned from December 2024 to March 2025 in energy-deficient regions, including Irkutsk, Chechnya, and the Donetsk People's Republic (DPR).
Corporate cryptocurrency mining likely to increase
These measures highlight the government's efforts to balance the economic benefits of cryptocurrencies and their energy demand, concerned about subsidized electricity and regional shortages.
"The Russian Energy Ministry is cracking down on mining equipment in energy-deficient regions like Irkutsk, Chechnya, and the DPR due to subsidized power and limited power supply. The conclusion is clear: energy is not infinite, and miners may have to operate covertly or transition," Mario Nawfal said on X in his opinion.
Amid these regulatory developments, Russia's largest bank, Sberbank, has announced a pilot program for cryptocurrency-based payments. This plan complements ongoing discussions about a digital ruble pilot and the issuance of a state-backed stablecoin. These efforts suggest a broader strategy by Russia to integrate digital currencies into the financial system.
Russia's cryptocurrency tax journey began in 2020 when the government first introduced legislation. Approved on the first reading in 2021, this bill has been delayed several times due to discussions on balancing innovation and regulation. Now, through these revisions, Russia is positioning itself as a major player in the global cryptocurrency arena with a cautious approach.
Experts believe these measures aim to attract institutional investors and create a stable cryptocurrency environment, which becomes necessary as the country faces sanctions and economic isolation. By implementing taxation on cryptocurrency-related income and energy restrictions, Russia is demonstrating its willingness to balance growth and governance.
However, while the new regulations provide the necessary clarity, challenges remain. The two-tier tax system and energy limitations could dampen small-scale miners, who may struggle to maintain profitability under the new framework. Yet, larger institutional mining operations may find opportunities in this regulated environment.
As Russia tightens control over the cryptocurrency sector, it remains to be seen whether these measures will foster innovation and stability or hinder growth.
