Banks Should Pay Interest on CBDCs to Reduce Tax Avoidance – Report

Source: Adobe / Cherezoff

Too much whip and too few carrots could be the wrong approach for those looking to levy taxes on digital currencies: this was the surprising conclusion of a new report commissioned by the South Korean central bank Bank of Korea (BOOK).

Per EDaily, the report was written by Jaevin Park, an assistant professor in the Department of Economics University of Mississippialong with Kwon Oh-ik, an associate researcher in the Department of Finance and Currency Research at BOK, Lee Seung-deok, a professor near Seoul Sungkyunkwan University.

The report examined the effects of a possible issuance of digital currencies by the Central Bank (CBDC) on the phenomenon of tax avoidance.

And its authors suggested that mechanisms that would allow digital currency holders to collect interest on their holdings could help encourage high-level and transparent activities with digital tokens – thereby minimizing the incentives for potential tax evaders.

Although the report focused almost entirely on the issuance of CBDC, its timing coincides with the introduction of crypto tax rules that will tax trading profits at a flat rate of 20% from 2022.

Lee Jong-cheol, a South Korean blockchain business consultant, said Cryptonews.com,

“The same theory could well be applied to crypto assets. When the tax authorities gave people a clear reason not to Find ways to avoid having their earnings declared – rather than just threatening them with penalties – that would help develop and overturn this promising part of the economy. “

In the case of the CBDC issue, according to the report’s authors, citizens would know that their transactions with tokens are always traceable. They would therefore simply resort to cash transactions wherever possible to stay under the radar and reduce the real value of a CBDC issue.

Introducing a Mechanism of Interest, on the other hand, would result in citizens being financially rewarded for using their CBDC holdings – which drives adoption.

BOK is expected to start testing its digital KRW in the next year.
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