The legislative victory of the New Popular Front (NFP) adds economic uncertainty. Indeed, the NFP program plans to eliminate the 30% Flat Tax on capital gains for an income tax. This new tax would heavily penalize large capital gains. But according to initial studies, the State would lose tax revenues… In addition, the number of investors in cryptocurrencies exceeds that of stocks. Capital gains taxation will be at the heart of the debate in the coming months.
The New Popular Front Program: ISF, Flat Tax, IR, etc.
The victory of the New Popular Front (NFP) could lead to a significant revision of taxation on cryptocurrencies. In particular, the NFP proposes to remove the single flat-rate levy (PFU) of 30%. The introduction of the PFU in 2018 was notably a step towards simplifying the tax regime applicable to capital gains from digital assets. All capital gains made on cryptocurrencies are thus taxed until today at the rate of 30%. But the NFP intends to tax these capital gains as earned income, according to the 14 established tax brackets.
The New Popular Front's fiscal program is mainly composed of the following points:
- “ Increase the progressivity of income tax to 14 brackets
- Make the CSG progressive
- Re-establish a strengthened wealth solidarity tax (ISF) with a climate component
- Remove the flat tax and reinstate the exit tax
[…]
- Reform the inheritance tax to make it more progressive by targeting the highest net worth individuals and introduce a maximum inheritance
[…]
- Make the fight against tax fraud and evasion a priority: to release the necessary human and financial resources, to take initiatives in conjunction with all the countries determined to lead this fight. »
Taxation: What the NFP Program Would Change
The overpressure of the Flat Tax in favor of income taxation would have the following impact:
- To reduce the capital gains tax for low incomes and low capital gains.
- To increase the capital gains tax on high incomes and large capital gains.
It should also be noted that the income tax proposed by the NFP imposes taxes on incomes of €1 or more, i.e. it taxes the poorest. This is not the case in the current tax system.
The marginal tax rate is, for example, 30% from an income of €34,000. Beyond €34,000 of income, the “ Flat Tax ” on each new capital gain would therefore become more expensive than in the current system.
Furthermore, cryptocurrencies are securities that would be included in the calculation of the wealth tax required by the NFP. This ISF would be reinforced by the climate “cost”.
Therefore, this new taxation could have two effects. On the one hand, this reform would reduce the tax base, that is, the number of people who paid the 30% rate. On the other hand, this reform will significantly increase the tax rate on large portfolios and could even lead to double taxation with the ISF.
Finally, we know that cryptocurrencies are often used by internationally mobile profiles. The restoration of theexit tax wanted by the NFP could indirectly benefit cryptocurrencies.
A Reform That Would Cost the State a Lot?
According to calculations made by the Montaigne Institute, the abolition of the Flat Tax would actually cause the State to lose tax revenue! In fact, the tax base would be reduced, and on average each taxpayer would pay less tax. The effect of the abolition of the Flat Tax would in reality be a cost for public finances. In other words, the NFP prefers to “tax the poor” or those not subject to the Flat Tax, to make the richest pay “more” on large capital gains… Such a reform would therefore certainly benefit most current investors, but the largest investors would be very heavily affected.
“ However, previous reforms have shown that the amount of dividends is highly sensitive to the tax rate. Since the abolition of the PFU corresponds to an increase in the rate of levies, the measure would probably lead to a reduction in the tax base, and therefore to lower revenues. If the taxable base were to return to its 2017 level, i.e. before the introduction of the PFU, the return from the removal of the PFU could be negative and generate a loss of €700 million. »
In a context of increasing public finance deficit, it seems difficult to imagine the implementation of such a counterproductive measure. Furthermore, the context of a very relative majority makes this measure a non-priority.
Current Taxation in France
To date, cryptocurrencies are considered as movable property. They are subject to income tax when sold for fiat currencies (euros, dollars, etc.). Profits made are taxed at a single flat rate (PFU), also called flat taxby 30%. In addition, the flat tax includes 12.8% income tax and 17.2% social security contributions.
Furthermore, this tax regime applies mainly to individuals carrying out occasional transactions. For professional traders or those whose trading activity is considered regular, profits are taxed at the progressive income tax scale, to which are added social security contributions. With the NFP, these social contributions would become progressive.
Finally, securities, including cryptocurrencies, are not currently subject to wealth tax. The current wealth tax only takes into account real estate. A reestablishment of the ISF by the NFP would lead to the integration of cryptocurrencies into the taxable assets of the French.
How Much Does the Flat Tax on Cryptocurrencies Bring In?
In 2022, more than 20,000 people reported cryptocurrency gains, according to the data provided by the General Directorate of Public Finances (DGFiP). These 20,000 French people declared nearly 400 million euros in capital gains. Which represents, with the flat tax of 30%, almost 120 million euros. However, the number of declarants remains significantly lower than the number of cryptocurrency accounts.
In fact, several surveys show that approximately 10% of French people would own cryptocurrencies in 2023. In addition, 85% of French people would have already heard of cryptocurrencies. In other words, the number of French people owning shares (less than 7%) would be much lower than the number of people owning cryptocurrencies. This proportion would nevertheless remain lower than that of our European neighbors. In addition, 26% of French people would consider investing in cryptocurrencies in the coming years. Despite everything, the French would place less than 10% of their savings in cryptocurrencies.
A Significant Loss of Earnings?
Therefore, the Flat Tax issue is greater on cryptocurrencies than on stocks. But the share of tax declarations remains very low on cryptocurrencies, and the means of control are very limited. In the context of a rise in the cryptocurrency market in 2024, the shortfall for the State could once again represent more than a billion euros.
“With the 30% flat tax, the State should have collected 1.2 billion euros if the method of calculating this figure is in accordance with the French general tax code. There is a huge gap between the 43.5 million euros of taxes of our clients and this figure”notes Pierre Morizot, head of the company Waltio, which specializes in taxation.
The lack of tax reporting by the cryptocurrency community can be explained by:
- The low amounts generally invested on the platforms.
- The “liberal” and anonymous nature of cryptocurrencies.
- The absence of withholding tax from Exchanges, as may be the case with shares.
- The complexity of the tax system.
- The public is rather young and not informed about tax issues.
Despite simplification efforts, cryptocurrency taxation remains complex. Taxpayers must navigate multiple forms and meet rigorous reporting requirements, which can be challenging for those unfamiliar with the technical aspects of taxation.
Conclusion
Ultimately, the relative majority obtained by the NFP could significantly transform taxation on cryptocurrencies. The NFP intends to eliminate the Flat Tax to tax capital gains in the same way as work. The elimination of the Single Flat-Rate Deduction of 30%, currently in force, would have two major effects:
- The increase in the rate of levy for large capital gains, particularly when the investor's income exceeds €30,000 per year.
- The reduction of the collection rate in the opposite case.
In addition, cryptocurrencies would be included in the movable assets and subject to the ISF. However, the various calculations made show that such a measure would cause the State to lose revenue by reducing the number of investors taxable at the previous rate.
Finally, almost all cryptocurrency investors do not declare their capital gains at present. In addition, the loss of revenue for the State would exceed one billion euros… A considerable amount at a time when the number of cryptocurrency investors exceeds the number of stock investors.
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