The Government does not recognize Cryptocurrency in Kuwait as legal tender. The government has taken a stance against adopting Bitcoin and other such cryptocurrencies as legal money because of its high volatility. Criminals also use cryptocurrencies as a vessel for transporting money earned from illicit activities. Keeping this in mind, the government has garnered further suspicion about the use of virtual coins.
Why does the Central Bank of Kuwait not recognize cryptocurrency as legal?
Cryptocurrencies are not regulated by any authorities like central banks, they can be difficult to monitor and control. Many people prefer to make transactions in Bitcoin because of the privacy it offers. However, criminals often misuse the privacy offered to hide the true nature of their transactions. Ill-meaning people and terrorists often pour black money into cryptocurrencies. This makes it easier to move out of the country, as well as shields the identity of the holder. Larger, more centralized exchanges do not allow the privilege of anonymity anymore, as they require identity verification for users to proceed with their transactions. However, smaller, decentralized exchanges which support anonymity-enhanced coins do exist, which are attracting more criminals over time.
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The Central Bank has banned commercial banks and other financial authorities in Kuwait from processing any transactions done in Bitcoin since 2017. The CBK also issued a statement in May 2021 to reiterate that cryptocurrencies are still not legal tender in the country. This stance is not likely to change anytime soon. The Central Bank of Kuwait has also issued guidelines and warnings to its citizens regarding the risks of investing in Cryptocurrency. The warning was part of the bank Diraya campaign, which means ‘Be Aware’.
Regulations for Individuals Dealing in Cryptocurrencies
However, the government has not banned its citizens from using cryptocurrencies yet. Citizens of the country can still mine, invest in and sell Bitcoin and other cryptocurrencies through centralized exchanges. In fact, Kuwait is considered to be one of the best places for mining cryptocurrency due to its extremely low electricity costs. The CBK included concerns over the mining of cryptocurrencies in its statement as well.
Cryptocurrencies like Bitcoin leave behind a large Carbon footprint because of the amount of electricity it use to ‘mine’ them. The mining process helps add new coins to the existing circulation, with the miners receiving a reward or commission for their efforts. However, when the supply of a crypto coin increases the associated rewards decrease. This causes an increase in electricity use to mine more and more crypto coins for higher returns. This can have a toll on the environment!
Dangers for Cryptocurrency in Kuwait
However, centralized exchanges are still vulnerable to attacks from hackers. Due to the lack of regulations, anyone may be able to hack into the system and reroute cryptocurrencies. Unlike banks, there is no assurance that your cryptocurrency can be traced and returned to you. This does make it a risky asset to invest in.
When people buy and sell Bitcoins on centralized exchanges, they need to verify their identity first. This does take away the promise of anonymity promised by cryptocurrencies a bit. Specialized cryptocurrency exchanges like BitOasis are coming up to cater to investors in the Middle East, who may not trust other exchanges like Binance and Coinbase with their purchases.
Government Stand on Cryptocurrency in Kuwait
Cryptocurrencies are not actual currency according to the Central Bank’s restrictions on cryptocurrencies. Rather, they are digital assets. The cryptocurrency market experienced a massive crash in 2021, in which many Kuwaiti investors suffered heavy losses. The Kuwaiti bank released its statement in the aftermath of the crash. Along with the volatility of crypto coins, the Central Bank of Kuwait also emphasized the fact that these coins can easily be used for illegal activities. They added that even though digital exchange platforms do ask users to identify themselves, they are still difficult to monitor and control. This gives hackers and criminals the chance to commit financial crimes and cyber-attacks.
Development of its Own Digital Currency
Following in the footsteps of countries like India, China, and Qatar, Government-owned Cryptocurrency in Kuwait may be a reality soon. Like cryptocurrency, digital currency will be completely online. Users can link the currency to their bank accounts and access them easily- even through their mobiles. Unlike crypto coins, the digital currency will be legal tender. It will be under the watch and control of the country’s apex financial institution i.e., the Central Bank.
When it comes to taxation in Kuwait, the country does not tax any income generated by individuals. Only Corporate income tax is levied, as well as tax on any foreign bodies operating in the state. As investing in cryptocurrencies counts as personal income, it is not subject to taxation. Individuals in Kuwait can profit from cryptocurrencies and enjoy 100% of their earnings.
On the other hand, corporate taxation regulations will consider a company engaging in crypto mining or trading will be considered as taxable. The Central Bank levies a flat rate of 15% of all corporate earnings in Kuwait. For foreign entities, the Central Bank levies a corporate income tax on only 50% of their profits.
The regulations regarding crypto mining are still unclear. However, due to Kuwait’s low electricity costs, it is a great place for crypto mining. As of yet, Kuwait has not banned cryptocurrency mining like in some other Middle Eastern countries. Individuals remain free to engage in cryptocurrency mining activities.
Conclusion
In conclusion, though the government does not consider cryptocurrency in Kuwait as legal tender in the country, the citizens of Kuwait can still buy and sell cryptocurrency as they please. The Central Bank of Kuwait has issued warnings to its citizens against investing in cryptocurrency. However, the government has not banned these activities outright.
However, banks and other financial institutions are restricted from allowing any transactions using virtual currencies. According to the country’s tax guidelines, individuals profiting from cryptocurrency trading do not have to pay any taxes. This makes cryptocurrency trading a profitable, yet risky investment in Kuwait. To circumvent the people’s interest in cryptocurrency in Kuwait, the Central Bank of Kuwait is also working on developing a completely digital currency as well as a digital platform to exchange it on.
