El Salvador wants to eliminate taxes to spur technological innovation after becoming the first country in the world to make Bitcoin legal tender two years ago.
Spurring Technology Innovation
President Nayib Bukele announced on Friday that he will send a bill to Congress next week to eliminate all taxes on software programs, coding, applications, artificial intelligence (AI) development, and manufacturing of computing and communication hardware.
Next week, I will submit a bill to congress to eliminate all taxes (income, property, capital gains and import tariffs) on technological innovations, such as software programming, coding, applications and AI development; as well as manufacturing computing and communications hardware.
— Nayib Bukele (@nayibbukele) March 24, 2023
This tax cut is part of Bukele’s plan to make El Salvador a cryptocurrency hub, and the move will attract more tech companies and startups to the country. By providing incentives for innovation and development, the government hopes to create a thriving technological ecosystem that will contribute to the country’s economic growth.
El Salvador’s adoption of Bitcoin as legal tender has become a controversial move, with critics arguing that it could lead to financial instability and increased money laundering. Others expect the downfall of Bukele’s government because of his ties to the International Monetary Fund (IMF).
However, Bukele has defended the decision as a way to provide financial inclusion to the unbanked population and promote economic growth in the country. By eliminating taxes on technological innovation and supporting the development of the Bitcoin mining industry, the government hopes to position the country as a leader in the crypto space.
El Salvador Set to Issue Bitcoin Bonds
In addition to tax cuts, El Salvador also recently approved a law to issue bonds backed by Bitcoin. The law includes the legal framework for issuing Bitcoin-backed bonds, also known as Volcano Bonds.
The bond is named after the country’s active volcano, which will provide the renewable energy needed to power the Bitcoin mining industry designed to support the bond.
The securities were first announced by Bukele in November 2021. The goal is to raise $1 billion for the development of the Bitcoin mining industry that uses renewable energy. However, due to the crypto bear market in 2022, the issuance of bonds will have to be postponed several times.
The digital assets bill was finally introduced in the Legislative Assembly in November 2022, where Bukele’s party, Nuevas Ideas, has a large majority. The bill was passed with 62 MPs voting in favor and 16 abstaining.
Bitfinex, a cryptocurrency exchange, earlier this year also announced that it will be the infrastructure provider for Volcano Token, a digital token that will be used to raise capital for bond issuance. The exchange says the Volcano Token will help El Salvador pay off its national debt, fund the creation of Bitcoin mining infrastructure, and finance the construction of “Bitcoin City.”
Feature Image From Jose Cabezas/Reuters, Chart From TradingView