Crypto Could ‘Erode Tax Base’ Fears Russian Tax Service

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In Brief
  • The head of Russia’s Federal Tax Service Daniil Egorov said cryptocurrencies could erode the tax base in a recent interview.

  • In addition to security concerns, the tax service feels compelled to engage with cryptocurrencies so as not to lose out on a potentially significant source of revenue.

  • In order to address the potential threat of tax evasion from cryptocurrencies, Egorov offered a number of solutions.

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The head of Russia’s Federal Tax Service Daniil Egorov said crypto and privacy-focused digital assets could erode the tax base in an interview with local publication RBC.

The breadth of the interview was broad, covering subjects from new tax regimes for businesses to modern payment solutions. In this latter context, Egorov was asked whether he had faced innovative tax evasion schemes. The tax service director highlighted that fraudsters tend to utilize anonymization in the provision of services for their schemes.

However, Egorov pointed out that because they exist in the digital space, such crimes become ultimately traceable. In addition to security concerns, the tax service feels compelled to engage with cryptocurrencies so as not to lose out on a potentially significant source of revenue.

“If we talk about cryptocurrencies, then we are now quite closely engaged in this market, realizing that this settlement system can create quite significant erosion for the tax base,” Egorov said.

Solutions being offered

In order to address the potential threat of tax evasion from cryptocurrencies, Egorov offered a number of solutions. For instance, he said that stakeholders of such systems and their users must declare their holdings and volumes, which is already expected in other markets.

However, he believes that a systematic approach needs to be taken in terms of overall regulation rather than ad hoc. ”It is necessary to identify the phenomenon and respond systematically, and not by some kind of operational Mauser methods,” Egorov said. “I would like to find solutions that close the problem as a phenomenon, and not as the actions of a specific player.”

Russian crypto mining tariffs

Last month, Russia and surrounding countries noticed an uptick in the number of cryptocurrency miners, as many continue to flee from China. Unfortunately, this has caused significant power issues in those regions and led to Minister of Energy Nikolai Shulginov saying he wants to stop cryptocurrency miners from having access to electricity at the same price as other consumers. 

Shulginov later indicated that higher tariffs could be in store for miners, who he believes exploit the subsidized tariffs that apply to the general populace for mining operations. This came in response to complaints made by Igor Kobzev, the governor of Irkutsk Oblast, about illegal crypto miners. Kobzev said that electricity usage reached 4.7 billion kWh in the first half of 2021, compared to 5.7 billion kWh for the whole of 2020.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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