UNCTAD takes aim at crypto in developing countries in a series of critical guidelines

The United Nations Conference on Trade and Development (UNCTAD) released a policy brief on cryptocurrency on Wednesday. It is the third consecutive brief the agency has dedicated to crypto, and together they represent a detailed assessment of the risks crypto poses to developing economies and options for addressing those risks.

UNCTAD Policy Brief No. 102, dated July but recently released, argues that while cryptocurrency can facilitate remittances and encourage financial inclusion, it can also undermine domestic resource mobilization in developing economies by enabling tax evasion by hiding the ownership of financial flows and directing them out. of the country. The authors of the brief statement: “Cryptocurrencies share all the characteristics of traditional tax havens – the pseudonymity of accounts and insufficient tax oversight or weak enforcement.”

Most developing countries do not have tax rules covering cryptocurrencies, and the lack of a third-party reporting system makes it easy to hide crypto holdings, the brief noted. It continued:

“Contrary to the popular belief that cryptocurrencies are not intermediate but operate using automated protocols, there are countless service providers including crypto exchanges, digital wallets and decentralized finance (DeFi) platforms that enable the use and storage of cryptocurrencies. Once regulated , these service providers can contribute to improved tax reporting.”

The brief recommends that developing countries define the legal status of cryptocurrencies and set reporting requirements for crypto service providers. In addition, it recommends the implementation of a “global cryptocurrency tax regulation” and a system for sharing crypto holdings and trading information. Higher taxes on cryptocurrencies compared to other assets would discourage holding them and using them for transactions, the brief noted.

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This is the third crypto-focused publication that UNCTAD has released in recent weeks. Its previous policy brief encouraged developing countries to implement a central bank digital currency (CBDC) or rapid payment system to use the payment benefits of cryptocurrency without the potential to undermine national economic stability and security.

UNCTAD Policy Brief 100 discussed the need for crypto regulation in developing countries. It noted the overarching necessity of crypto regulation in the developed countries where service providers are located, but recommended a number of restrictive measures in developing countries to counter “significant risks and costs regarding national monetary sovereignty, political space and macroeconomic stability.”