The Singapore government's proposal to exempt digital payment tokens from a sales tax when they are used to pay for goods and services is likely to benefit cryptocurrency exchanges, asset managers and blockchain entrepreneurs, according to accounting giant PwC.
The waiver of the 7 per cent goods and services tax (GST) would also bring the city state closer to Hong Kong in terms of being a tax-friendly jurisdiction for cryptocurrencies, said Gwenda Ho, a partner in PwC Hong Kong's corporate tax practice.
She said the proposal by the Inland Revenue Authority of Singapore (IRAS) could potentially spur more innovation from entrepreneurs in the field of blockchain-based services and solutions.
Gwenda Ho, tax partner of PwC Hong Kong's corporate tax practice. Photo: SCMP Handout alt=Gwenda Ho, tax partner of PwC Hong Kong's corporate tax practice. Photo: SCMP Handout
The IRAS recently issued a draft e-Tax guide explaining the proposed exemption from the 7 per cent tax for digital payment tokens. It coincided with a Ministry of Finance consultation on its draft GST (Amendment) Bill 2019 this month. The Ministry's consultation period closed last week.
"The IRAS recognises that taxing cryptocurrencies which function, or are intended to function, as a medium of exchange (digital payment tokens) results in two tax points " once on the purchase of the cryptocurrency and again on its use as payment for goods and services subject to GST," the authority said in the draft guide.
The waiver would level the playing field in terms of taxation between digital payment tokens and conventional money, industry players have said. And it would make Singapore's sales tax regime similar to other jurisdictions such as Australia, Japan, Switzerland and the European Union, which have also updated their tax rules for digital currencies in recent years, the Ministry of Finance said.
The proposed rules seem to suggest that as long as the token has the features of a digital payment token as defined by the guide, such proceeds from ICO could also be exempted from GST, said Ho.
Last year there were 650 ICOs globally, raising US$16.7 billion. But they have mostly dried up in Asia, industry participants said, as stricter regulations and the failure of many projects to take-off have halted their issuance.
The IRAS defines a digital payment token as one that can be expressed as a unit, is "fungible" " replaceable by another identical item " and is not denominated in or pegged to any currency. It cites bitcoin, ethereum, litecoin, dash, monero, ripple and Zcash as examples.
It also should be a medium of exchange broadly accepted by the public. This excludes game credits, or loyalty points issued by retailers or online platforms.
Ho said cryptocurrency exchanges and asset managers may also benefit from the sales tax exemption for tokens.
In both Singapore and Hong Kong, businesses that offer trading services for cryptocurrency securities or cryptocurrencies, or provide a service in managing investments on behalf of clients, are subject to corporate tax as long as the profits they generate are considered to be sourced onshore.
"While this proposal would improve Singapore's competitiveness in its GST treatment on cryptocurrencies, Hong Kong in comparison is completely free of any sales tax so there is one less tax issue to be concerned about for cryptocurrency industry participants," said Ho.
The proposed rule, if given the go-ahead, would become effective on Jan 1 next year.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
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