We have some really amazing stories of people here for example, Ix.shells is an Afro-Carribean artist from Panama who recently created and sold an NFT for about $2 million. This made her the highest paid female crypto artist at the time, and she’s from Panama!
The point is, how many more Ix.shells are out here in Panama? There are talented people in Panama who haven’t had the chance to connect with all of this and get their big break as she did. So, the interest of the general public is just overwhelming. As you know, people see this as part of the future and maybe feel a little bit uneasy, and sure there’s a little bit of hype and fear of missing out (FOMO), but the general fundamentals of native value for the internet, once you see it you can’t unsee it.
On the provision of services side, I have seen traditional wealth managers try to understand how to offer their clients exposure to these assets. Traditional wealth managers here are very traditional, they don’t even have robo advisors here, like Wellfront or others. So, it has been really manual, but even they are learning about the subject because their customers are demanding exposure to crypto assets in their portfolios.
If you’re earning and saving money, you want to have some exposure to crypto assets. So, I think everything is coming from the demand because on the supply side either the entities are very traditional or they don’t want competition, they fear this. However, with a clearer ecosystem, you might have the supply to match the demand which will hopefully turn the opinions of more traditional entities and help them see this as not just a competition to what they do but also a compliment to all the services they provide. Right now all the adoption has been driven by demand from end consumers, regular people who want to learn. They’re using LocalBitcoins, Binance P2P, they’re doing whatever has to be done to jump through the hoops to get crypto assets. But it is sketchy and not transparent. People are at times having to reinvent the wheel and incur high transaction fees to access crypto assets here. It’s just not optimal for good experiences and good adoption.
What was the thought behind Article 4 about digitizing the identity of those that wish to use crypto services? Is it similar to the know your customer (KYC) measures used by crypto exchanges?
Echandi: Not really. One thing is the KYC requirement is triggered by redeemable value entities, such as exchanges, which will need a license. This license will be compatible with all types of digital economy business models, especially centralized ones. For example, if Coinbase wanted to establish operations in Panama, they would have to get a license because they are actually custodying people’s assets, so that is something that needs to be regulated in a competitive way, and that does require KYC.
However, what we refer to in Article 4 is a completely different issue. Panama, as a unitary country rather than a federation, has certain centralized databases to manage the identity of people. People are already registered in the civil registry which is the electoral tribunal. So, if you’re a Panamanian citizen or resident, you get an identification (ID) card and that card allows you to interact with all public services. That process is extremely manual. What we feel is this whole blockchain technology, with or without crypto assets frankly, is an opportunity to bring more efficiency and transparency to every type of public service and management solution that the government provides.
On the legal citizen or resident side it’s the same thing. We have the public registry that lets you create public persons, legal persons engage in commercial activity, and it’s all currently manual. If we can make Panama’s public services more internet compatible, then we will be able to start automating and programming some of the interactions that used to be manual that can now be way more efficient.
We can even start — this is the more futuristic part — thinking of new ways of governance for people to solve problems. For example, we could think of topic-specific decentralized autonomous organizations (DAOs) for Panama to solve problems at the local level. Things that are not even possible to imagine because the identity itself is not really digitized. Or even very simple things like what Estonia has done in allowing people to create a digital signature even if you’re not a resident of Estonia. Why can’t we do that for the rest of the region or the world? That is not groundbreaking technology but with blockchain solutions we could do it faster or in a more transparent way.
Silva: In addition to what Felipe said, the intention of that article and other related articles is that the public sector welcomes blockchain technology in their internal processes. I’m one of the advocates in Panama of improving public policy transparency and efficiency. So I think it’s super essential that the government has a digital plan and agenda that is implemented in all its institutions. So, this article and others are laying the plans to digitize the government and include blockchain technology in their processes because we know from our experiences from other governments and international organizations that this technology can help with transparency, efficiency, saving costs, and public participation. So, the intention is a little bit broader but the blockchain technology and all its potential is in the government’s digital agenda to provide better services to the public.
Would Panamanian citizens or residents who do not wish to interact with crypto assets be exempt from digitizing their identity?
Echandi: I don’t think we have a lot of control over that. Do some people wish that they didn’t need passports to travel internationally? Yes. Passports were a temporary war measure that emerged after World War I but they became permanent. As Milton Friedman once said, “There is no more permanent thing than a temporary government measure.”
But the point here is, there will be requirements to comply with if you want to be a legal permanent resident in Panama. That isn’t in the scope of this bill. However, what is in our scope is for people to see the benefits in becoming residents of Panama and providing competitive rules in a way that they don’t see this as a crazy encroachment on the products of their labor and innovations. That is related to the tax regime that Panama already has. Panama is a territorial tax system. If you’re already a tax resident of Panama, you only pay taxes on assets that are physically located in Panama. This means that crypto assets like bitcoin or ether are not subject to capital gains tax because they do not have a physical location, they live on the internet. The possible exception could be someone who has dual citizenship and must give preference to their primary country’s transnational tax regime.
We believe we can offer very competitive tax treatment while clarifying the rules that apply to crypto. So if you become a Panamanian tax resident, with the asterisk of whatever your other country requires, Panama would only tax you on assets that are physically invested in the republic of Panama. So, most of the global, internet, crypto, or cloud-based creation of value would be considered foreign-sourced income. Even if you do trigger some of the taxable obligations here, especially capital gains, it would be at a very competitive rate which we’re proposing to be 4%.
The only case in which a crypto asset in Panama would trigger a capital gains event would be if you tokenize a piece of land in Panama or do something like the city DAO that is happening in Wisconsin. If you sell a token that represents a piece of land in Panama, that is a taxable event that would be at rate of 4%. Or if you tokenize a private company, like if a supermarket in Panama that’s not listed in the stock market and you sell that token, you’d be subject to the 4% capital gains tax.
So, we’re proposing to take Panama’s already competitive territorial tax system with crypto and make it attractive for foreign individuals to become Panamanian tax residents. The reason for that is not just for them to keep all their money. We want smart people and innovators living here physically. We want them to live on our beaches, in our rainforests, and in our cities so they can interact with Panamanians who have not been in touch with this technology and maybe create in person solutions that will help affect the immediate environment here in addition to doing whatever they’re doing for the rest of the world.
With the layered system of presenting and passing a bill into law in Panama, is there a time frame that you hope to see this bill become a law?
Silva: This project is definitely a very ambitious and technical project. As we have mentioned, it’s a very new topic in Panama and in the world, and it takes time for people to understand what it’s about. That it does not cause any harm and actually benefits the population.
Secondly, though the bill is very ambitious and positive, Panama’s government system is very different from that of other countries in the region. For example, El Salvador made their bill into a law very quickly. The reality in Panama is very different with its pros and its cons. So, it will take a little bit more time.
Nevertheless, since the project is very well done and thought out, it has already caught the attention of several politicians and government officials. We have already talked with a lot of Parliament members from all political parties who have co-signed the project with me. We’ve talked with high government officials from different ministries related to this topic and we know the executive branch is interested in discussing this.
It might take a while as it’s a very important and technical project, but due to its potential and the interest from different political parties and citizens and the international pressure we’re receiving regarding the gray lists and black lists, it’s important that we don’t fall into these categories and have everything straight. I think all of these things together will help the project succeed. I’m very optimistic about it. It will definitely take a lot of work from my side and everyone on my team to get this into a law. I don’t know how long it will take but we’re pushing it forward as soon as possible.
It also depends strongly on the community, so I would like to take this opportunity to ask them to support the bill, and show their interest. The support from the community has been great so far, just keep pushing and asking for the bill to pass because that pressure definitely helps it move forward faster here in Panama.
Conclusion
At the time of writing, this proposed bill has been admitted into debate in the Legislative Assembly’s Commerce Commission and must pass through three separate debates before advancing to the president’s office to be signed into law. The first debate is currently in session.
Silva and Echandi are open to all feedback regarding this bill and welcome your ideas via Twitter (@gabrielsilva8_7 , @felcheck ), and their Telegram group .
This is a guest post by Josh Doña. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
