Italy is considering a dramatic raise to its capital gains tax on Bitcoin (BTC) and other cryptocurrencies from 26% to 42%. The move could place it among the countries with the highest crypto taxation rates in Europe.

This decision, part of Italy’s 2025 budget plan, aims to address fiscal shortfalls by leveraging the fast-growing digital asset market.

Italy Risks Crypto Flight With 42% Bitcoin Capital Gains Tax

Italy’s Deputy Economy Minister Maurizio Leo announced the tax hike at a Wednesday conference. He said increasing the capital gains tax by 16% would bolster public services amid budgetary constraints. The government hopes that the added revenue will help address the country’s fiscal challenges, particularly funding public services and healthcare.

The plan also includes scrapping the revenue thresholds for Italy’s Digital Services Tax (DST), a measure targeting large digital platforms. Previously, the DST applied only to companies generating over €750 million (or approximately $815 million) in global revenue. However, this will no longer be the case if the proposed bill passes.

It is worth noting that Italy’s proposed 16% increase in capital gains tax contradicts what Prime Minister Giorgia Meloni recently wrote on X (formerly Twitter).

“…we [the Council of Ministers] approved the budget law, an intervention that puts citizens, families, and the relaunch of our Nation at the center. As we promised, there will be no new taxes for citizens. In addition, we will make the tax cut on workers structural, and 3.5 billion from banks and insurance companies will be allocated to Healthcare and the most vulnerable to ensure better services that are closer to everyone’s needs. With this Government, Italy looks to the future with a budget law that puts the work and well-being of Italians first,” Prime Minister Meloni shared.

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

The prospective capital gains tax has sparked significant controversy among investors and industry leaders, with largely negative reactions. The general sentiment is that it could stifle the country’s growing financial sector, especially in crypto.

Specifically, many argue that the move could push crypto investors out of Italy, potentially leading to capital flight. This occurs when investors move funds abroad to avoid taxes or inflation, seek better returns, or prepare for possible emigration.

The same happened in India in 2022, where heavy taxes on digital assets adversely affected crypto trading volumes. The government imposed a 30% capital gains tax on profits from digital assets starting in April 2022. Additionally, losses from one asset could not be used to offset taxes on profits from other assets, further impacting traders.

At the time, some overseas platforms saw signups surge to as many as 450,000, as Indian investors sought alternatives to avoid the country’s high taxes. This created a domino effect, with many shifting to foreign platforms. Given this precedent, there are concerns that Italy could face a similar exodus of crypto activity if heavy taxation policies are enforced.

“Time to leave Italy,” Lorenzo, a popular user on X, quipped.

Therefore, the risk to the local crypto industry is considerable as the bill awaits going into the voting stage. The proposed tax hike also comes at a time when Italy’s broader financial policies are in the limelight. In 2022, Italy imposed a 26% tax on cryptocurrency profits exceeding €2,000 (or $2,172). This marked a significant shift in the country’s approach to digital assets.

Against these backdrops, the latest proposed increase could make Italy one of the least attractive European nations for cryptocurrency investors. From a global context, this capital gains tax proposal would place it in a unique position in Europe. Italy could also lose its position in the region in terms of trading volume metrics.

Read more: Complete Guide to Filing Cryptocurrency Taxes in 2024

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

Tether’s CEO Paolo Ardoino is particularly vocal about Italy’s proposed bill, condemning the measure as detrimental to innovation. Ardoino criticized Italy’s plan, suggesting that it would hinder the country’s ability to attract new technological ventures.

“How dare the subjects use the Bitcoin as protection/optionality towards Italian financial policies,” Ardoino noted.