Israel is considering making Bitcoin a currency, according to a new bill that was tabled by four members of the Nationalist party Yisrael Beiteinu, which aims to regulate better the taxations of digital currencies in the country.
The four members, led by Oded Forer consider a 25% capital gains tax on Bitcoin to be outdated. They are looking to amend the current Income Tax Ordinance with a more adaptable version which reflects better the reality of digital assets and transactions.
The proposal referred to as a private member’s bill will add a new section to the Income Tax Ordinance in which digital currency is considered as an asset. This makes trading or converting any digital assets into fiat subject to capital gains. In the bill, the four members stated:
“The regulatory reality in Israel is not adapted to the existing reality in the field.”
New Bill: Qualities of a Real Digital Currency
The new bill stipulates that for a distributed digital currency to be considered a currency, it must have four characteristics. Any digital currency like Bitcoin which meets the set criteria will be considered a currency for both trading and taxation purposes.
First, it should be operated by a distributed network of nodes and not a centralized entity like state or financial institutions. The network should be in consensus as to the rules that govern development and transactions.
Secondly, the initial issuance of a currency unit need not have been intended as payment between either party and with a market cap of not less than 1 billion NIS ($287.4 million).
The last quality requires a digital currency to have a general utility purpose and not designated for certain uses or entities. The market cap requirement excludes the rest of crypto assets in the market, leaving only Bitcoin to be certified as a currency in Israel.
Amendment to Benefit Global Technology Development in Israel
Apart from reducing taxation on Bitcoin, the new bill also intends to boost innovation around blockchain technology in Israel, which already considers itself as a global high tech power.
The members believe that Israel has the capacity to be among the leading countries in digital currency innovation, which will play a central role in the future of world economic dominance.
“It is precisely in this period when the economic future is not clear that it is possible to promote digital payment options due to the social distance that has been forced on us.”
The Income Tax Ordinance was implemented in February 2018 declaring Bitcoin and other crypto assets to be taxed as capital assets. In May 2019, the Israeli District Court issued its first Bitcoin transactions ruling when it denied an appeal by a taxpayer to be exempted from paying 3 million NIS in taxes, from the profit he made selling Bitcoin in 2013.