Israeli regulators propose Bitcoin be taxed as a currency, not an asset

“The regulatory reality in Israel is not adapted to the existing reality in the field,” the proposed bill states.

Four members of the Israeli legislature are recommending that digital currencies be treated more like fiat for tax purposes.

According to a report from Israeli news outlet Globes, Knesset members MK Oded Forer, Yevgeny Soba, Yulia Malinovsky, and Alex Kushnir proposed on Sept. 22 that the government body amend existing tax law so that digital currencies like Bitcoin (BTC) would not be subject to capital gains taxes. Under current income tax policy, Bitcoin is treated as an asset and taxed 25% whenever individuals convert their tokens into fiat, or 15% for short-term lenders.

“The regulatory reality in Israel is not adapted to the existing reality in the field,” stated the bill. “[Digital currencies] will continue to be a growth engine that allow the Israeli high-tech industry to flourish and develop.”

Should the proposal become law, digital currencies could be taxed at a substantially lower rate. In 2019, individuals in Israel with income under 75,720 INS — roughly $21,781 as of this writing — were only taxed at a rate of 10%.

MK Forer said the government body should consider blockchain technology as a solution for digital payment options during the pandemic. Just today, the Knesset approved another nationwide lockdown starting on Friday after more than 7,000 people were diagnosed with COVID-19 in Israel within a 24-hour period.

“It is possible to promote digital payment options due to the social distance that has been forced on us," Forer said. “When the economic future is unclear, we need to give growth engines a boost.”

Bureaucracy has proved to be a major roadblock for digital currencies in Israel. Despite the recent growth in blockchain and crypto firms, pro-crypto regulators have had an ongoing battle since the government declared in 2018 it would treat crypto as an “asset” for tax purposes. In 2019, an Israeli court ruled that an investor had to pay capital gains tax on $830,000 in Bitcoin, arguing currencies in the country had to have some physical manifestation under current law.