According to a statement by a government adviser on Friday, El Salvador will exempt foreign investors from paying taxes on profits made from bitcoin speculation in the country following its status as the first country in the world to recognize cryptocurrency as legal tender.

Javier Argueta, the legal adviser to President Nayib Bukele, said, “If a person has assets in bitcoin and makes high profits, there will be no tax. This (is done) obviously to encourage foreign investment.” He adds, “There will be no taxes to pay on either the capital increase or the income.”

Instead of knowing the possible impact on El Salvador’s program with the International Monetary Fund, Bukele tweeted shortly before the lawmakers’ votes in favor of the move to create a law to adopt bitcoin, “It will bring financial inclusion, investment, tourism, innovation and economic development for our country.” However, El Salvador doesn’t have its currency.

With the bitcoin-dollar exchange rate set by the market, its use as legal tender will commence in 90 days. As of now, the government and the Central Bank did not hold any bitcoin.

El Salvador officially recognized Bitcoin as legal tender last week. Now, the Central American country has announced that it intends to attract crypto companies around the world by offering a tax break on Bitcoin profits.

The Government of El Salvador says that the new law will help many Salvadorans to make use of financial services for the first time and hopes to cut fees from payments from abroad, moreover, 23% of the nation's GDP comes from remittances.

Even though there are prohibitions in many other nations on the adoption of cryptocurrencies as a legal tender, Nayib Bukele has provided incentives for Bitcoin firms in the country.

Crypto Experts and policymakers have stressed the infamous volatility of digital currencies, its possible impact on developing countries, and the lack of consumer protection.

There are also concerns about its unlawful use in criminal operations like drug trafficking and terrorist financing risks.

The price of Bitcoin dropped by over $7,000 on the day it became legal tender in the Central American country. The day saw a surge in liquidations as Bitcoin was adopted as the country's official currency alongside dollars, with Salvadorans now permitted to transact using digital currency for everyday needs.

Joyashree Dey

CBW - External Analyst

INDIA