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El Salvador wants to waive taxes to spur technology innovations 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 programming, coding, apps, artificial intelligence (AI) development, and computing and communications hardware manufacturing.
Next week, I’ll be sending a bill to congress to eliminate all taxes (income, property, capital gains and import tariffs) on technology innovations, such as software programming, coding, apps and AI development; as well as computing and communications hardware manufacturing.
— 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 is expected to attract more tech companies and startups to the country. By providing incentives for innovation and development, the government hopes to create a thriving tech ecosystem that will contribute to the country’s economic growth.
El Salvador’s adoption of Bitcoin as a legal tender has been a controversial move, with critics arguing that it could lead to financial instability and increased money laundering. Others expected a collapse of Bukele’s government due to strained relationships with the International Monetary Fund (IMF).
However, Bukele has defended the decision as a way to provide financial inclusion for the unbanked population and to promote economic growth in the country. By waiving taxes on technology innovations and supporting the development of a 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 the tax cut, El Salvador also recently approved a law for the issuance of bonds backed by Bitcoin. The legislation includes a legal framework for the issuance of a Bitcoin-backed bond, also known as the Volcano Bond.
The bond is named after the country’s active volcanoes, which will provide the renewable energy needed to power the Bitcoin mining industry that the bond is designed to support.
These securities were first announced by Bukele in November 2021. The goal was to raise $1 billion for the development of a Bitcoin mining industry that runs on renewable energy. However, due to the crypto bear market in 2022, bond issuance had 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, had a large majority. The bill was passed with 62 legislators voting for it and 16 voting against it.
Bitfinex, a cryptocurrency exchange, earlier this year also announced that it will be an infrastructure provider for the Volcano Token, which is the digital token that will be used to raise capital for the bond issuance. The exchange said the Volcano Token will help El Salvador pay down its sovereign debt, direct funds towards the creation of Bitcoin mining infrastructure, and fund the construction of “Bitcoin City.”
Feature Image From Jose Cabezas/Reuters, Chart From TradingView