Italy’s government made a bold move to tighten the screws on cryptocurrency profits, unveiling plans to increase capital gains taxes on Bitcoin and other cryptocurrencies from the current 26% to a staggering 42%.

This unprecedented hike, announced by Deputy Minister of Economy and Finance Maurizio Leo during the unveiling of the 2025 Budget Law on Wednesday, is already sending shockwaves through the crypto community.

The tax increase is being positioned as a necessary measure to address budget shortfalls stemming from years of lenient fiscal policies. Leo explained the government is taking action as “this phenomenon is broadening out” — referring to the rapid growth of cryptocurrency trading and the resulting gains.

Tax Disparities Spark Debate

Currently, the tax rate on crypto gains sits at 26%, aligning with that of traditional financial instruments such as stocks and bonds.

However, under the new proposal, direct investments in cryptocurrencies like Bitcoin could face the steep 42% rate, while crypto-backed financial products, including Bitcoin ETFs and ETPs, would remain taxed at the lower 26%.

As some experts have cautioned, the proposed tax hike could open up legal loopholes and potentially face challenges over its constitutionality.

Although the increase is not yet finalized, it will only take effect if the 2025 financial bill is approved.

If passed, it would place Italy among the most heavily taxed jurisdictions for cryptocurrency gains in the world, making it a potential case study for how governments may respond to the rising prominence of digital assets.

Moreover, the tax hike could significantly diminish the attractiveness of direct cryptocurrency investments in Italy, pushing investors to relocate their assets to more crypto-friendly jurisdictions with favorable tax environments.

Until its final approval, the specifics of the tax changes remain unclear, leaving investors in a state of uncertainty and forcing them to navigate an unpredictable regulatory landscape.

Market Reactions

Bitcoin’s performance remained unaffected by the news on Wednesday.

At 3:30 p.m. ET in New York, Bitcoin (CRYPTO: BTC) was trading at $67,780, up 1.1% on the day.

Over the course of the week, the cryptocurrency has surged by 7.9%, reclaiming levels not seen since the end of July 2024.

Bitcoin is currently sitting about 9.5% below its all-time high of $73,835, set in March.

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