The government of El Salvador has now stated that it will exempt investors from paying capital gain taxes and income tax accrued on Bitcoin investments.
Encourage Investments through Bitcoin
According to a statement issued by the legal adviser to President Nayib Bukele, Javier Argueta, the country is seeking to boost foreign investments through Bitcoin by exempting investors from paying these taxes.
“If a person has assets in Bitcoin and makes high profits, there will be no tax. This is done obviously to encourage foreign investment,” said Argueta. He further clarified that El Salvador will not charge any taxes on the gains or income made through Bitcoin.
He also added that the government of El Salvador would closely monitor Bitcoin transactions made through the Chivo wallet. Chivo is a government-supported wallet that will be used to curb the use of cryptocurrencies for illegal transactions. He also added that the government was implementing some recommendations provided by international bodies to help the country combat money laundering.
The Chivo wallet will play an integral role in El Salvador’s adoption of Bitcoin as legal tender. The wallet will automatically halt transactions if the value of Bitcoin falls to a certain level in cases of extreme price volatility.
Bitcoin Launch Faced with Issues
When El Salvador announced its plans to launch Bitcoin as legal tender, it faced heavy criticism from the World Bank and the International Monetary Fund (IMF). The two bodies urged the country to be cautious because of the rapid price fluctuations that Bitcoin faces.
El Salvador accepted Bitcoin as legal tender last week and made history as the first country to do so. Following this law, merchants in the country will be forced to accept Bitcoin as means of payment.
To ensure that the use of Bitcoin is smooth for the country, the government partnered with Silvergate Bank and the Bitso crypto exchange to create the Chivo BTC wallet. According to the announcement, those who use the Chivo wallet will enjoy zero fees when converting Bitcoin to USD.
However, the use of the Chivo wallet has not been without issues. On the same day that the wallet was launched, it was taken down for maintenance. The wallet was reinstated shortly after, but some users have stated that they are still facing issues when trying to transact or withdrawing Bitcoin using the wallet.
Nevertheless, there is still optimism that the Bitcoin law will work after the leading bank in Salvador, Bancoagricola, stated that it was partnering with Flexa payments company to offer Bitcoin services to its customers. This is a first for the country, and it could also motivate other financial institutions to launch similar services.
Despite these efforts made by the government and financial institutions, there is still the dilemma of whether citizens will be willing to accept Bitcoin for payment. On the same day that the law was passed, Bitcoin crashed to lows of $45K, and it has failed to recover ever since. Hence, this volatility could deter Salvadorans from accepting payments in Bitcoin, given that the USD is still accepted as legal tender.