NFTs and Tax Evasion

The world of NFTs and blockchain technology is one of the endless possibilities, accessible to anyone. Can people with ill intentions take advantage of this to perform crimes such as tax evasion? Find out more below.

NFTs and Tax Evasion: An Unlikely Pair

The advent of Decentralised Finance, or De-Fi, exposed the world to the endless possibilities made possible by blockchain technology. One such possibility is the ability to create non-fungible tokens (NFTs) on the blockchain.

As exciting as this may be, the NFT and Metaverse space is relatively young, and the entire industry is still largely unregulated. There is a growing belief that individuals with malicious intent can leverage this loophole for their gain and commit crimes such as tax fraud.

There are several ways in which NFTs can be used to evade taxes. Some of them are; 

Failure to Report Earnings Made From NFTs as Income – NFT marketplaces are gradually becoming a significant source of income generation, especially among artists. Income from NFTs is similar to other sources of income and, as such, is subject to income tax, and failure to report income from NFTs to the appropriate authorities is considered tax evasion.

Under Reporting of Declared Assets – The anonymous nature of NFT transactions makes it possible for a person to obtain an asset of great value without anyone ever finding out their true identity. Unfortunately, this creates a loophole whereby the said person can pass down the asset without paying the due tax to the authorities. 

How Authorities Can Remedy The Situation 

There are many ways individuals with malicious intent can evade paying tax through NFTs. However, the good news is that many of these tax evasion strategies are “old tricks” in other industries, and the relevant authorities have figured out how to deal with them. The NFT space can adopt some of these techniques to reduce NFT-based tax evasion.

Crypto trackers are platforms that specialize in tracking the path of a crypto asset back to its source. Authorities can utilize the services of these platforms as they are incredibly efficient even in the face of increased privacy. 

Another route authorities can follow to battle these incidents is to create laws that require the reporting of NFT and general blockchain-generated income. The NFT space is a fast-evolving scene, and legislation has been slow to catch up. The innovative nature of the NFT space leaves room for individuals with malicious intent to explore the insufficient or vague regulations in place to commit crimes.

It Is Better Late Than Never

The lack of proper regulations within the NFT space is why all the concerns pop up. Issues such as tax evasion are pretty severe as they can cover several aspects of tax obligations, from income tax to capital gains tax. 

However, all hope is not lost. It is on the authorities to explore remedies to the situation, such as implementing relevant laws and sensitization of citizens.


  • Musa

    Proficient Web3 commentator with a penchant for analyzing decentralized applications and their societal implications.

The information provided on this blog is for informational purposes only and does not constitute financial, legal, or investment advice. The views and opinions expressed in the articles are those of the authors and do not necessarily reflect the official policy or position of NFT News Today.