What if cryptocurrency (CC) holdings were taxed? An empirical analysis of CC investors’ propensity

Purpose The absence of cryptocurrency (CC) tax regulations in many countries raises concerns about compliance and potential revenue losses. Understanding the factors that drive CC holders’ tax propensity is crucial for developing effective tax policies. Therefore, this research aims to explore the influence of contextual factors, e.g. CC legitimacy, CC investment risks, and social responsibility, and individual factors, e.g. attitude towards CC tax payment, technological competence and CC financial literacy, on CC tax payment propensity. Additionally, the study delves into the moderating role of financial literacy in the proposed model. Design/methodology/approach An integrated model of TPB-STC (theory of planned behaviour and social cognitive theory) was grounded in this study. Data were collected using a cross-sectional research approach through an online survey responded by CC investors. Findings The study found that attitude towards CC tax payment, social responsibility, legitimacy and CC financial literacy exerted a positive effect on the propensity to pay tax on CC. However, CC investment risks demonstrated a negative effect on propensity. Interestingly, the CC financial literacy-moderated interactions of crypto assets' legitimacy, technological competence and investment risks on CC tax payment propensity were significant. Practical implications The discoveries that emerged from this study contain practical and actionable insights for stakeholders, including regulators, tax authorities and investors. Educational programs focused on enhancing CC financial literacy should be integrated into public finance initiatives to improve taxpayers’ understanding of crypto taxation. Additionally, regulatory bodies can collaborate with crypto exchanges to implement transparent reporting mechanisms, making tax compliance more accessible and straightforward for investors. These actionable steps can help foster a proactive tax-paying culture, even in the absence of formal tax regulations. Originality/value This study provides a theoretical foundation of tax practices behaviour related to crypto in decentralized financial markets, paving the way for future research on self-regulating mechanisms within the present-day fast-moving crypto market.