Will investors leave the country?

Italy is considering a dramatic increase in capital gains tax on Bitcoin (BTC) and other cryptocurrencies from 26% to 42%. The move could make it one of the countries with the highest crypto tax rates in Europe.

The decision, which is part of Italy's 2025 budget plan, aims to address budget shortfalls by taking advantage of the fast-growing digital asset market.

Italy threatens the flight of Crypto with a 42% Bitcoin capital gains tax

Italian Deputy Economy Minister Maurizio Leo announced the tax increase at a conference on Wednesday. He said raising the capital gains tax by 16 percent would strengthen public services amid a budget deficit. The government hopes the additional revenue will help address the country's fiscal challenges, particularly in financing public services and healthcare.

The plan includes scrapping revenue limits for Italy's Digital Services Tax (DST), which targets large digital platforms. Previously, DST only applied to companies with global revenues of more than €750 million (or approximately $815 million). However, this will no longer be the case if the proposed bill passes.

It should be noted that Italy's proposed 16 percent capital gains tax hike contradicts what Prime Minister Giorgia Meloni recently wrote on X (formerly Twitter).

“…we [the Council of Ministers] He passed the budget bill, an intervention that puts citizens, families, and our nation at the center of our restart. As promised, there will be no new taxes for citizens. In addition, tax cuts on workers will be structural and 3.5 billion from banks and insurance companies will be earmarked for healthcare and the vulnerable to provide better services closer to everyone's needs. With this government, Italy will secure the future with a budget law that puts the jobs and well-being of Italians first,” shared Prime Minister Meloni.

Read more: How to Minimize Your Crypto Tax Liability: A Comprehensive Guide

The anticipated capital gains tax has sparked controversy among investors and industry leaders, with mostly negative reactions. The general idea is that it could stifle the country's growing financial sector, especially in crypto.

In particular, many argue that the move could drive crypto investors out of Italy, potentially leading to capital flight. This happens when investors move funds abroad to avoid taxes or inflation, get better returns, or prepare for migration.

In the year The same thing happened in India in 2022, where heavy taxes on digital assets negatively affected crypto trading volume. The government has imposed a 30% capital gains tax on profits from digital assets from April 2022. Additionally, losses from one asset cannot be used to offset taxes from other assets, which has a greater impact on traders.

Registrations on some overseas platforms soared as high as 450,000 as Indian investors sought options to avoid the country's high taxes. This created a domino effect, as many moved to foreign platforms. Given this precedent, there is concern that Italy may face a similar exodus of crypto activity if harsher tax policies are implemented.

“It's time to leave Italy,” said popular user Lorenzo on X.

So the risk to the local crypto industry is high as the bill waits to enter the voting stage. The proposed tax hike also comes as Italy's broader fiscal policies come into focus. In the year By 2022, Italy has imposed a 26% tax on cryptocurrency profits above €2,000 (or $2,172). This has marked a significant change in digital assets in the country.

Against these backgrounds, the latest increase could make Italy one of the most attractive European countries for cryptocurrency investors. From an international context, this idea of ​​capital gains tax places it in a unique position in Europe. Italy may lose its place in the region in terms of trade volume.

Read More: Complete Guide to Filing Cryptocurrency Taxes in 2024

Italy's parliament will vote on the proposal later this year. If approved, this tax policy could come into effect in 2025, potentially changing Italy's position in the global cryptocurrency market.

Tether CEO Paolo Arduino has been particularly vocal about the proposed bill in Italy, condemning the measure as damaging to innovation. Arduino criticized Italy's plan, suggesting it would hinder the country's ability to attract new technology jobs.

“How the subjects use Bitcoin as a protection/alternative to Italian financial policies,” said Arduino.