Israel’s crypto tax push falls flat as disclosure gap widens
Israel’s attempt to bring hidden cryptocurrency profits into the tax net is delivering only a fraction of what authorities had projected, exposing a widening gap between policy goals and on-the-ground reality.
The Israel Tax Authority (ITA) launched a voluntary disclosure framework aimed at crypto holders, hoping to unlock up to $1 billion in unpaid taxes from previously undeclared digital asset gains. Instead, disclosures so far cover roughly $50 million in crypto capital – just 5% of the target – according to recent figures cited by local media.
Only 58 taxpayers have used the special crypto disclosure track to amend or correct past tax filings. That number is far lower than officials anticipated when the procedure was introduced in August 2025, and suggests most crypto investors who may be under-reporting are still staying on the sidelines.
Under the program, eligible individuals can escape criminal prosecution if they amend their reports, fully disclose their crypto holdings and pay all outstanding taxes. The arrangement applies to taxpayers whose digital asset portfolio did not exceed the equivalent of about $522,000 as of December 2024. Participants must submit a complete and accurate disclosure and settle their tax bill no later than August 31, 2026.
For the ITA, the math is disappointing. A policy designed to convert undeclared crypto profits into a substantial tax windfall is instead producing only minor revenue, even as the deadline window continues to narrow. The small number of participants hints at a deeper structural problem: distrust, perceived low enforcement risk, or both.
Tax professionals point to a key design flaw. Iftach Simhony, CPA and head of the tax department at Prof. Bein Law Office, has argued that the lack of an anonymous stage in the voluntary procedure severely weakens its appeal for crypto holders. Unlike some traditional disclosure programs that allow initial, no-name consultations or filings through representatives, the Israeli crypto track requires taxpayers to reveal their identity from the outset.
In the context of digital assets, where users are acutely sensitive about privacy and traceability, this can be a deal-breaker. As Simhony has noted, many crypto investors may judge that their exposure to enforcement is limited enough that it is not worth volunteering information that can be used against them later if the application is rejected or if legal interpretations change. Without the safety buffer of anonymity, they have little incentive to step forward before they receive clear assurances.
Authorities, however, remain convinced that the disclosed $50 million represents only a small fraction of the crypto wealth sitting outside the formal tax system. Central bank data helps explain why. In its financial stability review covering January to June 2024, the Bank of Israel estimated that residents collectively held around $1 billion in crypto assets. While not all of that amount represents taxable gains, the figure underscores the gulf between what is likely held and what is being reported.
The weak participation rate comes at a time when Israel is tightening its broader stance on digital assets. Regulators and the central bank have been increasingly focused on the systemic and consumer risks of cryptocurrencies, particularly stablecoins that are beginning to intersect with everyday payments rather than remaining confined to speculative trading.
Bank of Israel officials have publicly acknowledged that private digital currencies are starting to feature in mainstream payment discussions. Stablecoins, in particular, are being reassessed as potential instruments within the country’s future payments architecture, even as policymakers worry about money laundering, consumer protection, and monetary sovereignty.
This policy pivot puts crypto holders under a brighter regulatory spotlight. When payment providers, banks and fintech firms are pushed to monitor digital asset flows more closely, the practical room for “off-the-radar” crypto activity shrinks. In principle, this should strengthen the incentive to regularize tax affairs. In practice, the design of the voluntary disclosure track appears to be undermining that logic.
The Israeli experience also echoes global debates about how far tax agencies should go in policing everyday crypto usage without overburdening taxpayers. In the United States, lawmakers have floated the PARITY Act, which would instruct the Internal Revenue Service to consider a de minimis exemption for small digital asset transactions. Under the proposal, routine low-value crypto payments would not have to be reported as taxable events, easing the compliance burden while keeping enforcement focused on larger gains.
Both Israel and the US are wrestling with the same balancing act: how to ensure digital asset income is taxed fairly, without making compliance so complex or risky that ordinary users either disengage or move activity underground. Israel’s current results suggest that a purely enforcement-oriented mindset, without adequate carrots such as anonymity or clear safe harbors, may be counterproductive.
From a behavioral perspective, several factors likely explain why the Israeli program has fallen short:
– Perceived low audit risk: Many taxpayers may believe the ITA still lacks the tools to reliably trace their on-chain activity, especially when it involves foreign exchanges or self-custody wallets. If they assume detection is unlikely, there is little motivation to self-report.
– Complex reporting rules: Crypto taxation is technically complex. Distinguishing between capital gains, income, staking rewards, forks and DeFi yields is not straightforward. Some investors may simply be overwhelmed, choosing inaction over the risk of making a wrong disclosure.
– Fear of retroactive scrutiny: Without an anonymous stage, coming forward means handing authorities a detailed map of one’s transaction history. Those who fear that interpretations of the law might later harden, or that additional years could be opened for review, might prefer to remain invisible.
– Mistrust of institutions: In markets where trust in government is fragile, financial amnesties and voluntary disclosure schemes are often met with skepticism. Crypto’s ideological roots in decentralization and distrust of intermediaries only amplify this effect.
If the ITA wants to close the gap between expectations and reality, it may have to consider recalibrating the program. Options could include:
– Introducing an initial anonymous channel through tax advisors, allowing individuals to test their eligibility and potential liabilities before revealing their identity.
– Publishing clearer, binding guidance on how specific crypto activities are taxed, which could reduce uncertainty and fear of later reclassification.
– Offering partial penalty relief or more flexible payment plans to make disclosure financially feasible for taxpayers with large, unrealized obligations.
– Coordinating with banks to provide a smoother path for converting crypto to fiat in a compliant way, rather than relying solely on post-hoc enforcement.
There is also a strategic question for policymakers: is the primary objective to maximize immediate revenue, or to bring as many participants as possible into long-term compliance? A tough, highly visible enforcement approach may deter some non-compliers, but it can also push others further into opacity, especially in a borderless ecosystem like crypto.
At the same time, the rapid institutionalization of digital assets – from regulated trading platforms to exchange-traded products – gradually reduces the space for undeclared holdings. As more investors migrate from peer-to-peer channels to regulated venues that share data with tax authorities, the practical benefit of staying outside the system diminishes. This trend may, over time, succeed where voluntary programs struggle.
For Israeli crypto users, the current landscape is a mix of rising scrutiny and limited clarity. The voluntary disclosure track offers a formal route to clean up the past, but its strict conditions and lack of anonymity are deterring many of the very taxpayers it is designed to attract. Unless the framework is adjusted or enforcement becomes visibly more assertive, the program risks reaching its 2026 deadline having captured only a token slice of the hidden crypto economy.
Globally, Israel’s case is becoming a live example for other jurisdictions: a reminder that in the world of digital assets, tax compliance is not just about rules and deadlines. It is about designing systems that recognize how crypto users think, what risks they perceive, and what incentives are strong enough to bring shadow capital into the light.