The proposal of the Singapore government’s taxation agency to remove goods and services tax (GST) from cryptocurrency transactions could give a boost to the burgeoning sector, experts and industry participants claim.
Earlier this month, the Inland Revenue Authority of Singapore (IRAS) released an e-Tax draft guide outlining the tax treatment for “digital payment tokens” and unveiled its intentions to exempt cryptocurrency transactions from GST.
Under the current rules, the cryptocurrency used for payments is treated as a taxable supply of services, meaning that the sale, issue or transfer of such tokens for consideration by a GST-registered business is subject to GST.
If the draft passed into legislation, starting from January 1, 2020, the use of cryptocurrency purely as a method of payment for goods or services would be exempt from GST.
According to Zann Kwan, co-founder and CEO of Bitcoin Exchange Pte Ltd. in Singapore and a board member of the Singapore Cryptocurrency and Blockchain Industry Association (ACCESS), the move would make Singapore a pioneer in crypto regulation and accentuate the city-state’s position as a blockchain hub.
For David Lee, a professor at the Singapore University of Social Sciences and an entrepreneur, the changes could give fresh impetus to ICOs.
David Lee “My humble view is ICO will make very strong come back,”
Lee wrote in a Facebook post.“I strongly suggest ACCESS and international crypto organizations to focus all energy on self regulation of ICOs. This is the killer app of blockchain.”
The Ministry of Finance is seeking public consultation on the legislative amendments for digital payment tokens till July 26, 2019.
Zann Kwan “The proposed changes in GST is a positive move that the ecosystem values in order to enhance Singapore’s position as a cryptocurrency and blockchain innovation hub,”
Kwan wrote in a post. “Singapore is now taking the lead in cryptocurrency taxation for aligned development of the cryptocurrency, blockchain and digital payment ecosystem.”
The proposed changes would not only avoid the issue of double taxation when accepting virtual currency as a form of payment, but would also “be one of the friendliest tax regulations in the world for non-securitized token offerings, among the various financial hubs,” Kwan wrote.
Comparing Singapore’s proposed regulatory changes with international counterparts, Kwan notes that in Australia, there is currently no GST liability when virtual currency is used to pay for goods and services. However, the treatment is not extended to initial coin offerings (ICOs), meaning that ICO revenue might still be subject to 10% GST liability.
Similarly, in the UK, when bitcoins are exchanged for the pound sterling, no value added tax (VAT) is due on the value of the bitcoins themselves, but ICO revenue is likely to be subject to the 20% VAT rate.
“This means that Singapore is the pioneer among the global financial hubs to establish friendly and well-defined GST regulations for non-securitized tokens,” Kwan wrote.