El Salvador might soon be a country without taxes on technological innovation; the President proposes a bill. On Thursday, March 23, 2023, President Nayib Bukele announced submitting a bill to El Salvadore’s congress, asking for the elimination of taxes on both software and hardware innovations.
The Proposed Bill & Possible Implications
It would be an understatement to say El Salvador is a Bitcoin-friendly nation. The extent of the supposed bill is unclear, and it is still unknown if it will affect BTC applications. However, it is being speculated that the bill is another way of enhancing cryptocurrency adoption.
Taxation over technological innovations has the potential to hamper industrial development. They must be provided an ecosystem where their innovations are valued for their credibility and not taxed on their potential to generate revenue. If such a system is in place, more and more innovators will be motivated to create revolutionary things and systems.
El Salvador and Bitcoin – A Fascinating Story
In a gazette announcement, El Salvador on June 9, 2021, made BTC a legal tender in the country. The legislation took effect on September 7, 2021, making them the first country to formally have BTC as a legal tender.
The citizens of El Salvador could use Bitcoin to pay off debts without any transaction limits, buy groceries, and pay taxes; any prior obligation in USD can now be paid in Bitcoin, and the government will provide a system allowing swift transactions for conversion of BTC to USD.
Why Did El Salvador Adopt Bitcoin?
One, BTC was adopted to increase efficiency in international remittances, as around 20% of their GDP comes from remittances. Two, many citizens of El Salvador did not have bank accounts; this legislation facilitated easier access to financial services for 70% of the population. This will also further reduce their dependence on USD.
Warnings From the International Monetary Fund (IMF)
The IMF warned the “Land of Volcanoes” about the effects of accepting BTC as a legal tender. They argued that this acceptance would have numerous microeconomic and legal issues, all of which require thorough analysis and can potentially disrupt the country.
The IMF watches international economic impacts related to domestic prices if they become unstable. Due to their inherent nature, cryptocurrencies are volatile, which increases the possibility of adverse international impacts, if other countries follow suit, the World Bank rejected prior requests from the El Salvadoran government for assistance on Bitcoin four times.
Global Implications of El Salvador’s Decision
Many speculated that adopting Bitcoin as a legal tender by El Salvador could bring cryptocurrency into the definition of money. This means it will become a medium of exchange currently authorized or adopted by foreign or domestic governments. After the legal definition of Bitcoin changed in the country, it had implications for themselves and other governments worldwide, who might have to adapt to BTC transactions.
Many international and national financial authorities are closely monitoring El Salvador’s actions. They wish to understand the implications and legal adjustments that might alter the nation’s financial regulations. Major concerns were the required changes in the financial regulatory framework and the huge impact it will have from a business point of view.
However, it is too soon to judge its impact on the world economy. Nonetheless, it can be considered a step towards decentralized finance.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/03/24/el-salvador-to-eliminate-taxes-on-tech-innovations-nayib-bukele/