A cryptocurrency (Ethereum, Bitcoin, Litecoin, etc.) has stirred controversy worldwide. Countries around the globe have variant perspectives, notions, and most importantly are skeptical about the evolving concept, Cryptocurrency. It would be righteous to state what the Financial Markets Authority’s (FMA) findings on cryptocurrency as an investment would be: they are considered as highly risky and volatile and vulnerable to online frauds and scams. Cryptocurrencies have increasingly gained recognition and economies see it as a stepping stone to e-cash payments.
New Zealand is one such country, and it has not only legalized Bitcoin but also made its prevalence in inland as another form of exchange currency, thereby subject to taxation. This move of the Inland’s law will come into force on September 1st, 2019, for a period of 3 years. New Zealand Inland Revenue Department has ruled that income and salary payments in cryptocurrencies are legal and s 91D of the Country’s Tax Administration Act 1994 provides guidance on how exactly it should be taxed.
The Government of New Zealand permits cryptocurrency to be used as payments made by the employers to the employees in the form of salary. This law comes with a pre-condition that crypto payments should form part of the employee’s salary which is fixed at a pre-determined amount or rate or is a share of regular remuneration also covering bonuses, commissions, and gratuities. The fact contrary to this proposition makes it evident that its benefits extend only to the salary or wage earners and not to the self-employed taxpayers.
There is yet another important aspect, which qualifies the payment as tax assessable. Ruling conceptualizes that crypto-assets paid in the form of salary must not be subject to a lock-up period and must be directly convertible into a fiat currency. The former proposition of the tax authorities could be contemplated as, and the crypto asset is equanimous to money-like or a peer to peer exchange currency. Therefore, the lock-up period would paint the wrong picture more likely to be understood as an investment option, share, debt securities, or a voucher. The latter proposes a way out, in a market at a global level where crypto assets are not readily accepted as payment for goods and services or is not a monetary exchange medium it should be pegged against another fiat currency (dollar, euro, pound, rupee), which is another country’s designated currency, to determine cryptocurrency’s exchange value.
Legalization of Cryptocurrency is only a baby’s step; it has a long way ahead. The lawmakers globally are appreciating the concept of cryptocurrency, but its implementation is not free from scrutinization. In addition to the above constraints, what can make cryptocurrency more prevalent is acceptance of salary or any payment also in the form of Bitcoins it would appear highly pervasive as a peer to peer exchange.
Secondly, the value of cryptocurrency is pegged against more than one fiat currency. As a result, it widens its prevalence and enables payments with stability. Finally, in New Zealand salary or wage earners are taxed directly from their salary, and this system of collection is known as PAYE. Cryptocurrency also to be awarded the PAYE status. This would deliver dual benefit. Tax collection becomes easier even though in the form of cryptocurrency and tax evasion activities would be highly controlled. Legalization of Bitcoin is indeed a step to progress and door to a plethora of opportunities or rather challenges, on a discursive note.