Italy to raise bitcoin capital gains tax from 26% to 42%

Italy is set to increase capital gains tax on bitcoin (BTC) from 26% to 42% by 2025.

The move is part of the country’s draft budgetary plan (DBP), released on Wednesday, which outlines measures to raise additional revenue.

Italy aims to raise 0.2% of its gross domestic product (GDP) by 2025, translating to approximately €4 billion ($4.35 billion).

With this significant tax hike, Italy could become one of the highest-taxed nations for bitcoin investors, potentially driving them to explore alternative markets or strategies to mitigate tax burdens.

Italy targets bitcoin with a 42% tax rate by 2025

The proposed tax hike comes amid efforts by the Italian government to generate new sources of revenue.

The nation’s draft budgetary plan, which includes raising taxes on banks, insurance products, and gaming licenses, specifically targets the growing cryptocurrency sector.

The increase in bitcoin taxes is expected to contribute a substantial portion of the €4 billion target, as the country seeks to balance its budget and address economic concerns.

Falling inflation and bitcoin investment rise prompt tax increases

Italy’s inflation fell below 1% in September 2024, leading to increased pressure on the European Central Bank (ECB) to cut interest rates.

The government’s DBP highlights a potential decrease in revenue from banks, insurance, and gaming businesses, with GDP contributions expected to fall by 0.073% in 2026 and 0.096% in 2027.

The tax on bitcoin is expected to compensate for this shortfall, as the government anticipates an increase in cryptocurrency investments amid cooling inflation rates.

Italy’s capital gains tax among the highest globally

With the increase to 42%, Italy’s capital gains tax on bitcoin will rank among the highest in the world.

This sharp rise is a significant shift from the current 26% rate and places Italy ahead of many other European nations in terms of cryptocurrency taxation.

Countries like Portugal, which have implemented more crypto-friendly tax policies, may become more attractive to investors looking to escape higher tax burdens.

Potential investor exodus amid tax hike

The proposed tax increase could prompt an exodus of bitcoin investors from Italy, as the higher rate may deter further investments.

Many crypto traders and investors could seek alternative jurisdictions with lower tax rates or explore loopholes in the new rules to avoid the 42% tax.

Italy’s decision may also discourage foreign investors from entering the market, further impacting the country’s ability to capitalise on the growing cryptocurrency sector.

Interest rate cuts may drive increased bitcoin trading

As the ECB faces pressure to reduce interest rates, lower borrowing costs could encourage investors to take on more risk.

Bitcoin, known for its volatility and potential for high returns, may attract more interest as borrowing becomes cheaper.

Italy’s government could be banking on this increased trading activity to boost tax revenues despite the potential loss of some investors due to the higher tax rate.

Economy Minister Giancarlo Giorgetti is expected to hold a press conference on Wednesday to discuss the new tax measures in detail.

The press conference may provide additional insights into how the government plans to enforce the new bitcoin tax rules and whether there will be any exemptions or allowances for long-term investors.

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