Turkey moves to tap crypto earnings

• Traders hedge against inflation and unstable lira
• Exchanges to withhold 10% of gains
• President can move levy between zero and 20%

Turkey’s government plans to tax earnings from cryptocurrency investments, seeking to tap the growing trend of trading in tokens as a hedge against inflation and lira instability. 

Draft legislation tabled with parliament this week aims to regulate crypto trading and boost state coffers with new levies due two months after lawmakers’ approval.

Under the bill, crypto traders operating through authorised exchanges will have 10 percent of their gains withheld automatically, with the regulation applying to individual investors and companies, be they resident or non-resident. The withholding tax will be collected quarterly. 

Those trading on unregulated platforms will also be subject to tax, having to declare their profits annually and pay accordingly. 

Cryptocurrencies can be traded directly between digital wallets, allowing users to send or receive funds without going through a crypto exchange.

Though the legislation sets the tax at 10 percent, this can change at the discretion of the president, who will have the authority to adjust the levy between zero and 20 percent. 

Service providers will also be required to pay a 0.003 percent transaction tax on the sale amount or market value of crypto assets they broker, with the levy paid monthly.

According to an impact analysis, the levy on crypto earnings is forecast to generate around $95 million per year, based on transaction levels of an estimated $200 billion in 2025. 

The proposed tax is part of a wider revenue package drafted by the Treasury and Finance Ministry aiming to raise between $800 million and $1 billion through increased levies on certain transactions and the sale of some state-owned properties as part of a privatisation programme. 

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The first reaction of investors to any new tax measure is caution, though the levy of 0.003 percent is low and the same as that applied to transactions on the stock exchange, economist and crypto expert Erdal Öz told AGBI.

“This fee will not cause investors to withdraw from the market,” he said. “However, if on top of this a 10 percent income tax were introduced, this… could lead them to seek alternatives.”

With crypto already seen by some as a risky investment, and in the midst of geopolitical sensitivity due to conflict in the Gulf, Öz said the new levies would reduce trade volumes if introduced in full. 

“The initial reaction to taxation will, to some degree, lead to caution, but as the details emerge I believe things will normalise.”