Crypto Mining Companies to Face 30% Excise Tax, Wash Sale Rules Proposed
Excise Tax on Cryptocurrency Mining Companies
• President Joe Biden has proposed a 30% excise tax on cryptocurrency mining companies for the power they use.
• The U.S. Department of the Treasury’s document published on 9 March, also proposes to eliminate tax-deductible losses associated with crypto token wash-trading.
• According to White House estimates, worldwide power usage for crypto assets is 120-240 billion kilowatt-hours per year— more than the annual electricity usage of Australia.
Tax Loopholes in Crypto Assets
President Joe Biden’s Fiscal Year 2024 budget proposed to implement wash sale rules for crypto assets in order to close tax loopholes. Wash trading is the practice of selling a financial instrument for a loss in order to claim the deductible and then immediately buying it back again. Traders are prohibited from repurchasing securities within 30 days, but this rule does not apply to crypto assets which can be repurchased immediately after claiming a deductible loss. This loophole allows traders to avoid paying taxes and reduces government revenue significantly.
The increase in energy consumption caused by digital asset mining has negative environmental consequences and may have implications for environmental justice, as well as raising energy prices for those that share an electricity grid with these operations. Additionally, local utilities and communities are exposed to risks and uncertainty due to this activity.
Implementation of Restrictions
The United States expects to impose restrictions on cryptocurrency beginning 31 December 2023, in order to generate an estimated $24 billion from closing these tax loopholes as per the White House estimate. The 30% excise tax will be implemented over three years in 10% annual stages starting 31 December this year.
Cryptocurrency mining operations have severe adverse environmental impacts while also increasing prices for those sharing a grid with them, creating uncertainty and risk among local utilities and communities alike. To address these issues President Joe Biden has proposed an excise tax on cryptocurrency mining companies that is 30% of the cost of the power they use, as well as eliminating some existing tax loopholes related to crypto tokens such as wash trading or repurchasing tokens immediately after deducting losses from taxes paid earlier etc.,