By Landon Manning
As the economy of the Central European nation of Hungary has been buffeted by the coronavirus pandemic, it is attempting to entice economic investment by means of a major tax cut on bitcoin.
As the COVID-19 pandemic has raged throughout the European Union, Hungary has been hit particularly hard in a variety of ways. Economic hardships and post-pandemic recovery have become the most salient issue in the upcoming 2022 election, and public-facing businesses have been encouraged to start fully opening up despite difficulties in vaccine rollout. This has left the country, relative to its population size, to hit the highest death rate for COVID-19 worldwide in April 2021.
Compared to many other members of the European Union, the Bitcoin space in Hungary is currently in a state of underdevelopment, with trading volumes still being far and away the highest during Bitcoin’s 2017 spike. This trend continues in spite of the fact that the world’s number one cryptocurrency is currently enjoying a period of prolonged price success putting this earlier bull market to shame. With so many prominent institutional investors and public figures jumping on Bitcoin’s rocket to the moon, a plan to stimulate recovery in Hungary has developed.
On May 11, 2021, Finance Minister Mihaly Varga posted a video address on Facebook, describing radical changes to the nation’s laws on cryptocurrency, alongside other economic recovery incentives. Under the current tax regime, Hungarians pay 30.5% on capital gains taxes from cryptocurrency transactions, but Varga claims that the proposed changes will reduce this by more than half, to a mere 15%. Under Hungary’s parliamentary system, the next election does not yet have a fixed date beyond 2022, but 2022 is also the date by which Varga expects this measure to become law.
Since the laws on cryptocurrency taxing in Hungary do not consider bitcoin to be an actual currency, the rules regard the boons of successful cryptocurrency investment to be the same as many other forms of capital gains. For this reason, whatever bitcoin deals do take place in Hungary are frequently underreported. Varga claimed that a loosening of taxes may make cryptocurrency enthusiasts more likely to self-report their actual gains, which could generate “several billion florints” more in revenue than usual.
With this plan still requiring ratification from the legislature, in addition to the proposed tax breaks not being scheduled to kick in until an election year, it is unknown to what degree the Hungarian government will make further initiatives to entice the cryptocurrency market to set down roots. Nevertheless, although the Bitcoin community there is currently small, its roots go all the way back to Nick Szabo, one of the people most likely to be the real identity behind Satoshi Nakamoto. With a few measures like Varga’s tax proposal, crypto capital could find a real home in the fertile soil of this underdeveloped European market.
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