The capital gains tax on cryptocurrencies indicates that members of the Islamic Consultative Assembly (Iranian Parliament) consider cryptocurrencies and blockchain speculative and inflationary as assets like cars and foreign currencies.
The “Speculation and Arbitrage Tax” plan, previously known as “Capital Gains Tax,” was proposed with concern by the Parliament’s Economic Commission. Among the goals of this plan are to combat speculation and exploitative behavior in markets such as automobiles and housing, which are tied to people’s daily lives, to prevent artificial inflation, and to tax unproductive activities.
Article 4 of the plan includes five types of assets under the law: real estate, automobiles, gold and jewelry, foreign currency, and in the fifth section, various cryptocurrencies and digital assets. Technology experts have criticized this section. After three years of discussion in Parliament, the plan was approved and sent to the Guardian Council to check its compliance with Sharia law and the Constitution. However, in June, the Guardian Council raised objections, noting, as experts had pointed out, that since no proper definition of cryptocurrencies exists anywhere in the plan, the use of terms like “digital currency” and “digital asset” lacked a clear definition. The Guardian Council identified this ambiguity, so the plan was returned to Parliament for revisions before further review by the Guardian Council.
Nevertheless, critics believe that the cryptocurrency section was suddenly added without expert or research-based work. From the time the capital gains tax was first proposed, there was no mention of cryptocurrencies, and the only part that refers to them is Article 4. There’s no clear definition of what cryptocurrencies are, no research background by Parliament, and no explanation of how such a new technology with a short history in both Iran and the world was suddenly grouped with well-established speculative markets like foreign currency, cars, and housing. Additionally, with the global price of cryptocurrencies changing in real-time and their buying and selling happening online, it is unclear how the tax will be imposed. Given the underlying reasons for the speculation tax proposal, it seems members of Parliament consider cryptocurrencies as speculative and inflationary as assets like cars and foreign currencies. However, according to blockchain technology experts, this raises questions due to the technological nature of cryptocurrencies and their non-physical and global characteristics.
We discussed the capital gains tax issue with “Mahdi Toghyani,” the spokesperson of the Parliament’s Economic Commission, which is summarized below.
Toghyani explained why the cryptocurrency section was added to the capital gains tax plan: “The addition of cryptocurrencies to the capital gains tax law was due to a report from the Research Center, which studied the issue and suggested adding cryptocurrencies. In general, anything that can be used for speculative purposes could be added to this law, and some items might be removed or added in the future. Since cryptocurrencies can be used as a tool for speculation and for individuals to make unproductive investments, the Research Center’s report recommended including them in the law.”
A Plan Rejected by the Guardian Council Before Implementation
Toghyani explained the reason for the Guardian Council’s rejection of the plan: “The issue for the Guardian Council and the Expediency Council was not the removal of this clause, but rather the debate over the definition of cryptocurrencies and how taxes on cryptocurrencies would be collected, as well as other issues that are currently being addressed in Parliament.”
It appears that the “types of digital currencies and digital assets” clause was added to the speculation tax plan, even though there is still no clear definition of digital assets in the plan, nor is it clear how the tax on digital assets will be collected. This is particularly problematic given that the nature of assets like currencies, cars, or real estate is fundamentally different from new technologies. Cryptocurrencies, due to their inherent nature, are uncontrollable—they can be transferred from one point in the world to another at any moment, and unlike other assets in the plan such as real estate, cars, gold, and fiat currencies, they do not have a physical location.
Regarding the definition that is supposed to be included in the law by the Parliament’s Economic Commission—a point also criticized by the Guardian Council—Toghyani said: “Cryptocurrencies and digital currencies are mentioned in the tax plan; however, we have not defined cryptocurrencies at all, and still haven’t done so. The Research Center is reviewing the matter, but we have not yet concluded.” When asked why cryptocurrencies, despite their fundamental differences from other assets like cars and real estate, were included in the plan, he responded: “It’s not the assets themselves that are the issue, but rather the motivation behind their use. When people use cars or houses not for consumption, but to buy today and sell at a higher price tomorrow, that’s the problem. Cryptocurrencies share these same characteristics. In the speculation tax, the principle is that any asset that can be used for speculative purposes should incur a cost, which is why cryptocurrencies were added to this law. If the issues can be resolved and the Guardian Council’s concerns addressed, cryptocurrencies can also be considered as one of these assets.” The spokesperson for the Parliament’s Economic Commission also clarified why speculation is perceived in cryptocurrency transactions: “Our concern is not taxing the assets themselves. The issue is if speculation occurs—meaning short-term buying and selling with the intent to profit—that would be subject to tax laws. Otherwise, if someone holds cryptocurrency and uses it for other purposes, such as for imports or exports, and receives cryptocurrency in return, they can transfer it without any restrictions, and it won’t be subject to taxes. However, speculative buying and selling aimed at making a profit will be taxed, just like other assets such as land, houses, gold, and currency.”
Tax on Buying and Selling Cryptocurrencies for Profit
It should be noted that blockchain technologies have various uses, and one of their applications is cryptocurrencies. Cryptocurrencies are not always used for buying and selling. Toghyani explained: “The tax on cryptocurrency gains is not intended to tax new technologies, but rather the profit generated from trading them. This does not apply to those who use cryptocurrencies for imports or receive them in exchange for exports. For example, someone who has conducted exports and received cryptocurrency in return should not pay tax. However, someone who buys and sells with the intent of making a profit is similar to someone who buys a house and engages in short-term trading to make a profit, and thus becomes subject to tax laws.”
Under this plan, taxes on cars, real estate, and foreign currency work in a way that if a person sells their assets within a short time frame during the first year of ownership, they must pay a 35% tax, which decreases in subsequent years. The same rule applies to cryptocurrencies. However, when it comes to cryptocurrency trading, these transactions occur instantly and online, which raises debates about how to calculate taxes on this technological asset. In response to the question of how long a cryptocurrency needs to be held before being taxed, Toghyani said: “It has not been finalized yet and still lacks the Guardian Council and Expediency Council’s approval. However, it has been suggested that 35% tax should be imposed in the first year and 25% in the second year, following a decreasing scale.” He also compared the different parts of the plan, such as real estate, with digital assets, saying: “For instance, in the case of real estate, for every individual over 18 years old, one home is considered for personal use. Each family can have up to four homes exempt from tax. If a person identifies one home as their primary residence, it is not subject to this law, and no matter how many times they buy or sell, it is exempt from capital gains tax. However, if they register more than this number of homes, they will be subject to tax. If a person has a home but does not register it, once it is sold and the money is deposited into a bank account, since it was not registered in the system, it will be subject to anti-money laundering laws and taxed at the highest rate as incidental income.” He further explained the application of these principles to foreign platforms: “Consider a person who owns Bitcoin or Ethereum. If this plan becomes law, the individual will have six months to declare how much Bitcoin they own. It will be registered in the taxpayer system, indicating the amount of foreign currency or cryptocurrency they possess. If they use this cryptocurrency for imports or consumption-related activities like travel, it won’t be taxed. However, if the asset is not registered and they decide to purchase real estate, the money they transfer to the seller’s account will be suspicious since its origin is unclear, making it potentially subject to anti-money laundering scrutiny. Likewise, as long as the cryptocurrency circulates on foreign platforms, there’s no issue. But the moment it converts into a transaction, if it hasn’t been registered in the taxpayer system, it becomes suspicious for money laundering.”
“If this plan becomes law, individuals will have six months to declare how much Bitcoin they own, and it will be registered in the taxpayer system, detailing the amount of foreign currency or cryptocurrency they possess.”
Cryptocurrencies, Like Currencies, Are Consumable
In response to whether the rules for holding up to four homes for a family also apply to digital currencies, and whether a minimum threshold of cryptocurrency holdings could be set for individuals, the spokesperson for the Parliament’s Economic Commission, Toghyani, said: “No, because foreign currency is consumable. Currency is only for someone who wants to import goods or has exported goods and received currency. The law does not recognize buying and selling currency for profit. The same applies to cryptocurrencies. There is no recognition of buying and selling Bitcoin to make a profit. However, if you export goods, conduct trade, or sell services (for instance, as a software engineer working for a foreign country and being paid in Bitcoin instead of dollars), you can register it in the system, and it will be considered as part of your assets without being subject to tax. You can use it for travel, which also won’t be taxed, or use it for purchasing something abroad or selling it to someone for imports, and it won’t be taxed. This is because the law on speculation taxes is not designed to tax cryptocurrencies. However, if you enter the realm of buying and selling Bitcoin with the intent to make a profit (buying today and selling tomorrow), this means you are moving currency out of the country—converting local currency to dollars, and then to Bitcoin, thus transferring capital out of the country. This would be subject to capital gains tax, just like someone who buys and sells foreign currency, engages in speculation, and thus incurs taxes on the profit from the difference between the buying and selling prices. The same principle applies to cryptocurrencies.”
Another key difference between the cryptocurrency market and traditional markets is that although this industry is transparent, it is uncontrollable. If there is any problem with domestic platforms, individuals can use foreign platforms to exchange cryptocurrencies, which would take the situation entirely out of the control of national laws. Toghyani responded to whether taxing cryptocurrencies, given their uncontrollable nature, might take the situation out of the government’s hands, saying: “The issue with taxing cryptocurrencies is not about whether the exchange is domestic or foreign—the focus is on the capital gains tax itself. What matters is the conversion of an asset into cryptocurrency. The moment an asset is converted into cryptocurrency, it is recorded in the taxpayer system as part of the individual’s assets. When they sell the cryptocurrency and convert it back into domestic currency, that is also registered. Therefore, it doesn’t matter if the transaction is conducted through a domestic or foreign exchange.” He added: “The same applies to foreign currency. The moment someone converts their assets into foreign currency, it is recorded. And when they convert that currency back into domestic assets or cash, it is also recorded, and the difference between the purchase and sale price is clear. So, there is no difference between domestic and foreign exchanges.” When asked if there would be any oversight over foreign platforms, Toghyani explained: “There is no plan to differentiate between domestic and foreign platforms, and the goal is not to monitor foreign platforms, because there is no need for oversight. Most of the world does not impose governance over platforms either—not even on gold and currency. For example, someone could keep gold in their house. This is no less anonymous than a foreign platform. We wouldn’t know about it unless they tried to convert it into cash or currency—once a transaction occurs, the asset becomes known. But as soon as they convert the asset into coins or currency, it is considered a transaction and will be taxed accordingly.” He continued: “But how do we know what price they bought the asset for and what price they sold it for? This will all be recorded in the taxpayer system. The law will likely provide a six-month window for individuals to declare their assets, including gold, currency, cryptocurrency, and real estate so that later transactions involving these assets will not be subject to anti-money laundering measures. As soon as the asset is sold and the money enters the individual’s account, a transaction has occurred, and it must be declared in the taxpayer system—indicating what the asset was and where it came from. If these assets are not registered, and a transaction occurs, it will be subject to anti-money laundering laws, and treated as incidental income with the highest rate of tax penalties.”
[If the capital gains tax law is passed] as soon as the asset is sold and the money enters the individual’s account, a transaction has occurred, and it must be declared in the taxpayer system—indicating what the asset was and where it came from. If these assets are not registered, and a transaction occurs, it will be treated as money laundering, and taxed as incidental income at the highest rate.
Taxing Cryptocurrencies: From the U.S. to Iran
Currently, there is also debate in the U.S. regarding cryptocurrency taxation. U.S. President Joe Biden supports taxing cryptocurrencies, while Robert F. Kennedy Jr., who is running in the 2024 election, has promised not to tax cryptocurrencies. Given the global dimension of this issue, it seems that it holds significant importance for the general public. Regarding this matter, Toghyani commented: “The capital gains tax or anti-speculation tax is not a tax on cryptocurrencies or assets. What exists in the U.S. is unrelated to this law. They tax assets, they tax wealth, whereas the anti-speculation tax is not a wealth tax. The capital gains tax targets wealth derived from speculation. If I hold cryptocurrencies, it’s like holding dollars, a house, or a car. I’m not taxed just for owning these assets, but if I hold more than what I need for personal use, or if I seek profit from buying and selling cryptocurrencies, I am subject to tax. However, if I use cryptocurrencies as a medium of exchange, I won’t be taxed. In the U.S., the debate is about wealth tax. A new form of wealth called cryptocurrency has been identified, and they tax it. But we don’t have such a law in Iran yet, and cryptocurrency is not taxed as an asset. We aim to tax profits from traders who enter the cryptocurrency market with speculative intent, and this is done by tracking their transactions. As soon as they convert rials to Bitcoin, or Bitcoin to rials, we can identify them.”
Additionally, with cryptocurrencies, rials can be converted to digital currency in foreign exchange without ever being converted back to rials, which amounts to currency outflow in an underground economy. Toghyani explained: “After this law is passed and the systems are fully implemented, any money converted into digital currency will be recorded in the taxpayer system. This means that in the taxpayer system, any rial converted to Bitcoin will be registered. From that point on, any financial transaction made within the country must include a declaration of its purpose. Suppose you deposit 500 million tomans into a money exchanger’s account—the exchanger might give you dollars or Bitcoin in return. As soon as you make a transaction at the exchange, meaning when you convert a national currency into another asset, it must be recorded, specifying what the asset is. The exchanger must report whether they sold you dollars or Bitcoin. As soon as they report selling dollars, the dollars are deducted from the exchanger’s account and credited to the buyer’s account, or the Bitcoin is deducted from the exchanger’s account and credited to the buyer. If it’s not registered, both parties to the transaction, meaning the buyer and the exchange, will be suspected of money laundering.”
The spokesperson for the Parliament’s Economic Commission, in response to whether there is any plan to cooperate with foreign exchanges operating in Iran, said: “If foreign exchanges want to conduct rial transactions, they too will have to register in the system. Every rial transaction must be recorded in the taxpayer system according to the law, regardless of the origin, destination, or purpose of the transaction. Of course, this process will take two or three years, by which time the anti-speculation tax will be enacted as law, and the taxpayer system, which is currently for businesses, will be expanded to cover individuals as well. At that point, every national ID will have a profile, and every transaction associated with that ID will be recorded in that profile.”
Tax Collection or Capital Flight?
However, one cannot deny that this issue resembles capital flight, where individuals, for various reasons—including safeguarding their assets—invest in neighboring countries. The same scenario applies to rials being converted to Bitcoin through foreign exchanges. If these transactions move to foreign exchanges, they not only fall outside of legal oversight but also deprive domestic platforms of growth opportunities. Toghyani explained this issue by stating: “Investing abroad is prohibited in Iran, but the government has no control over what happens outside the country. We are discussing domestic exchanges. It’s like if I had gold coins and worked with them in the market; my gold coins wouldn’t be identified until they were converted into domestic money and transactions. Once they are converted into a domestic transaction, they will be identified.”
In a situation where much of our capital is already invested abroad, particularly in neighboring countries like Turkey and the UAE, where the use of cryptocurrencies is facilitated and they even offer tax exemptions on cryptocurrencies, being overly strict on this market in Iran could lead to a shift toward foreign platforms and result in capital flight. Toghyani addressed this concern by saying: “In the current situation, what is preventing capital flight? There’s nothing stopping it, and the government doesn’t oversee it. If someone holds their assets in the form of cryptocurrency and earns profits from it, does that benefit the country’s economy in any way? Is there any benefit to us? What prevents these assets from leaving the country? Nothing stops them. In fact, capital gains tax, due to the registration of these assets in the taxpayer system, serves as an enforcement mechanism to prevent capital flight. This system will clearly show who has exported and received cryptocurrency or who has imported goods, and they won’t be subject to taxation. All these export and import transactions will be recorded in the system but will not be taxed. However, if someone uses assets that should be utilized in the country’s production or cryptocurrency meant to facilitate national trade for speculative purposes, the law will intervene. But even then, not 100% of the profit will be taxed—only about 35% of the capital gains, meaning the difference between the purchase and sale price, will be taxed.”
