Bitcoin Forum

(I don't even know if this is the right place to put this, but I'm sure it'll get moved if necessary)

It is 'morally wrong' to pay tradesmen cash in hand, says David Gauke (http://www.telegraph.co.uk/finance/personalfinance/consumertips/tax/9421590/Middle-classes-who-pay-cash-in-hand-morally-wrong-and-aiding-law-breaking-says-minister.html) (Exchequer Secretary to the Treasury)


The concept of Bitcoin + tax-evasion is not a new concept, but it is something Bitcoin's image is going to have to deal with if we ever want Bitcoin to reach any degree of acceptance at a higher level. 

I'm just going to place this here ...

 - http://georgedonnelly.com/libertarian/how-to-start-doing-agorism

And not to justify his statement, but the "morally wrong" claim specifically refers to giving a discount for paying cash.  Presumably this indicates that the discount is possible because the income won't be claimed / taxed.

[Update: Here's the actual quote.



 -  http://www.standard.co.uk/news/uk/now-cashinhand-morals-minister-comes-under-fire-from-tradesmen-7972473.html (http://www.standard.co.uk/news/uk/now-cashinhand-morals-minister-comes-under-fire-from-tradesmen-7972473.html) ]

I saw that story, too.
With builders, everyone will always pay tax. An MP can hardly change that, especially as the public see them as tax evaders themselves.
Or the MPs could say:
'Don't pay in cash, or you will be like us!'
That would go down well.

There's no particular reason Bitcoin is incompatible with VAT-style tax systems. Think about inverting the situation.

Right now discounts for paying in cash is obviously a tempting deal for both parties because the buyer has no particular incentive to help the tax man.

The government could provide a rebate for reporting transactions to it. This is too much hassle for people to do today, so they rely on tapping the banking network to view transactions. But if you have open source clients and an automated, open payments system like Bitcoin nothing stops you having software that automatically reports things you purchased to the tax authorities who then effectively "cut you in" on the resultant tax take.

Alternatively, businesses are required to register the root public deterministic key, so the tax collectors can generate all the public keys that the business will be using. Random audits and/or micro-payments to consumers for reporting transactions mean the collectors can cross-check against the public addresses. If a business requests payment to an address that isn't derived from the right root key, it's obvious they are not reporting all their income.

It's not clear to me that our current tax system (in the UK) is the best way to do things, carousel fraud is a fairly obvious problem, but I feel that with further research a country could come up with a remarkably efficient and fair tax collection system that leverages Bitcoins strengths.

The UK Treasury isn't fond of liberty.

^^ This

Line 1: How much did you make?
Line 2: Send it in.

that is the scariest thing about bitcoin i didn't know was possible.

Oh, there are scarier.

By the way, the UK Treasury is not a tax collector, no more than the US Treasury is. Tax collection in the UK is handled by Her Majesties Revenue and Customs (HMRC), equivalent to the IRS.

There have always been people on this forum who believe Bitcoin means the end of taxes, but there's no justification for that belief. Taxes were collected before electronic banking and identity verification. They're collected in places that have historically had a strong commitment to financial privacy like in Switzerland.

Some taxes are obviously not affected by Bitcoin, like land or property taxes.

Other taxes like income tax might be, but tax collectors have become very good over time at detecting mismatches between lifestyle and declared income. Some of them can estimate your income accurately to within thousands of dollars based purely on watching how you live. Even with absolutely untraceable transactions, which Bitcoin does not provide, there's no point in having enormous undeclared income if you can never actually spend it.

If you dislike taxes, your best bet is not to push Bitcoin on the grounds that it makes collection impossible (it doesn't), your best bet is to make solid libertarian arguments and present convincing alternatives to problems that are today solved via taxation. There's no shortage of such arguments, but societies differ a lot. For instance in the UK there's a national health care service of the type that has been painted as the epitome of evil in the US healthcare reform debates. It's funded entirely by taxation. Politically it's untouchable because it's so popular - many right-wing politicians would dearly love to reform it or semi-privatize it, the problem is that whenever they try they discover the British people really like the NHS and are terrified of it being turned into a US style system, perhaps they think it wouldn't work as well.

One of the things that has been discussed from time to time is could a small country adopt bitcoin as legal tender?

My feeling is that if I was a small country thinking of doing this I would contract bitcoin experts to design me a system pretty much identical to bitcoin, but with taxation built in.

In the current world governments need taxation, however much citizens may individually dislike it.

The great gain would be it could be automated, anonymous and fast! Wow, consider that anonymous tax. In a land where the government may not be as nice as ours, (like they only rarely kill people!) that could be a big win!

A developing country would of course need physical coins too as not everyone has a computer. (I'm sure casacaus could supply these!)  So the "cash" economy would still avoid taxation. But perhaps there could be a probabalistic taxation mechanismn built even into this. (Like the tax is paid on a coin when redeemed, and depends on the age of the coin.)

Is there any way that bitcoin as it is could be used to enable anonymous and un-avoidable taxation I wonder? Or would a newly designed currency as postulated above actually be needed?

Consumption taxes are relatively anonymous. The government would simply force retailers to collect this at the point of sale from consumers as they do now for cash. In Australia you pay 10% extra on goods and services.

I was under the impression that you can't do the sort of check you are describing on a deterministic public key. The private one sure, but I don't think people would register those. Are you sure it's possible?

A state could launch their own version of bitcoin with the states receiving address hard coded into the protocol. All transactions then must send a percentage of the transaction to that address or it doesnt get accepted into a block.

This is like the flat tax that some libertarians seem to like. Every transaction whether its a purchase, or wages paid, or an investment made is taxed at a flat rate. It would replace all other taxes.

Such a system would be transparent, but also anonymous. And it wouldnt involved any wasted economic output, filling out tax returns or declarations.

Yes, it's possible to provide only the public keys. Read this:

  https://raw.github.com/gist/1799467/56005604bb1f4899da5226fe23a4fab32356c90d/gistfile1.txt

Or of course, you could just pre-generate a lot of keys and provide them to the tax authority. Deterministic wallets is just an optimization.

In theory if you had a country-specific version of Bitcoin you could also tax miners, and through them, impose a small tax on all transactions payable via fees.

Solidcoin has a built in tax on all blocks which is what you are talking about but no one uses the coin  :)

That's a good idea, although this can still be worked around by use of 'banks'...I trade a voucher for BTC stashed at this bank to you, and no block chain trade ever took place, just some number on the bank's books. How will the govt get its auto-cut if the bank is dishonest?

There is a natural incentive to use clearing houses like this because of the waiting time. To buy little conveniences, it's much faster just to trade cash than the real thing.

There's also the cost of electronic processing; not everyone will want to pay to have it (e.g. people normally on the go, traditional cash economy things like markets, tradies etc)

I can just imagine the conversation:

Tax Official: This Bitcoin is a disgraceful, immoral way of avoiding tax.
Bitcoineer: Oh you can just implement you own blockchain and impose a flat tax rate. No problem, give me a day and I will set up a server to collect all your country's taxes.
Tax Official: But what will I do?
Bitcoineer: You will be unemployed and unemployable.
Tax Official: Umm, Errr, (shuffles papers). Well thanks for your input and we will get back to you (=sometime never).

Imagine the money they could save not needing to employ a whole army of tax collectors , might even save enough to not have to pay as much tax :D

The tax man should be pleased. BTC has the potential to make cash payments a lot more traceable because of it's dependance on IP for identification. Sure, you could do offline transactions but eventually you need to talk to the blockchain to confirm it.

For all this talk that Bitcoin is anonymous... that it may be at the moment but I think as it gets more popular it will become less so. I just don't think it's anonymous.

What is the current state of privacy with it now? - look at the various theft threads to see how far the taint has been tracked.

edit: And regards mixing services - same attitude can be (will be?) taken as the traditional fiat approach.
So Bitcoin I think is more of a problem for the moneyprinters aka the private Bank of England. I think the tax man and the people can be united in support of Bitcoin against this and both can experiences the advantages of it (and disadvantages).

Just HOW far has it been tracked? Has the identity of ANY Bitcoin thief been uncovered through blockchain forensic mechanisms? Ten hops to some innocent investor or business doesn't count.