Russian Lawmakers Drop ‘Mining’ References in Digital Assets Bill
Russian lawmakers have dropped the term “mining” from a bill to regulate digital assets, following the earlier removal of references to “cryptocurrency.” In addition, the proposed legislation no longer covers the taxation of mining profits, as such matters will fall under the oversight of the Federal Tax Service.
State Tax Authority to Determine
Taxes on Mining Profits
Anatoly Aksakov, head of Russia’s parliamentary Financial Market Committee, announced the latest amendment to the bill, which is expected to regulate Russia’s growing crypto industry, on the sidelines of Finopolis 2018. Roughly 1,500 people participated in the annual event, which is held by the Bank of Russia. Attendees included government officials and representatives from domestic and foreign companies in the financial and IT sectors.
Aksakov said that the long-awaited bill, “On Digital Financial Assets,” will not resolve lingering questions about the taxation of profits generated by cryptocurrency mining companies, the number of which increased by 15 percent in the first half of this year. Rather, the Federal Tax Service will have to decide on its own whether it will tax such operations. According to Aksakov, it would not make any sense to refer to mining in the revamped bill, given that it no longer includes any mention of cryptocurrencies. The proposed legislation is scheduled for a second reading in the State Duma following public discussions later this fall.
This past spring, three bills were filed in the lower house of Russia’s parliament to establish comprehensive rules and regulations for digital assets, the fintech industry and related sectors such as cryptocurrency mining. However, Russian lawmakers have struggled to synchronize the different legal terms used in the bills. After adopting them on first reading, they decided to postpone the final votes for the fall session. In the meantime, the drafts have been compiled into a single legal framework that differs significantly from the original versions.
Few Options on the Table
The decision to remove references to “mining” in the draft follows earlier reports that lawmakers had dropped the term “cryptocurrency” from the merged bill. Previously, the law had defined “mining” as the process of creating cryptocurrency, as well as the practice of rewarding entities for validating cryptocurrency transactions. Mining was also recognized as an economic activity that could be performed by both companies and individual entrepreneurs, meaning it would be subject to taxation when an operation’s electricity consumption exceeds certain limits.
However, Aksakov noted that Russian officials are no longer thinking about integrating cryptocurrencies into the national economy. “Since we decided we don’t need them, mining is not needed either,” Interfax quoted him as saying.
Other reports suggest that Moscow plans to regulate the crypto space in cooperation with the Financial Action Task Force, which is soon expected to present a new set of anti-money laundering standards for cryptocurrencies. Aksakov’s comments came after President Vladimir Putin’s special representative for digital and technological development, Dmitry Peskov, justified the decision to wait for the new standards to be released, pointing to the high risks associated with the nascent cryptocurrency sector. Peskov also recently claimed that the cryptocurrency market is evolving much more quickly than the government can write new laws, and hinted that Moscow might not even adopt comprehensive legislation for the sector at all.
If anything, the comments of both officials betray their limited knowledge about cryptocurrencies and the industry that has evolved around them. In truth, very little has changed in regard to the core principles that underlie cryptocurrencies. A decade after the creation of Bitcoin, cryptocurrency is still seen as a decentralized, electronic form of money that can be transferred on a peer-to-peer network. Most politicians fail to understand these principles and the mechanisms like mining that underpin cryptocurrencies.
Within this context, the Russian authorities actually have a limited set of options. The centralized state needs to control what’s entering the borders of the “sovereign democracy” built under Putin. Following in the footsteps of China, however, is not what some influential business players want. In contrast to the state-sponsored draft legislation, an alternative bill proposed by the Russian Union of Industrialists and Entrepreneurs not only mentions cryptocurrency, but also grants it special status.