One of the potential barriers to large-scale cryptocurrency adoption has to do with how governments respond to it. However, governments have been slow to draft documents dealing with crypto. While the decentralised and private nature of crypto makes it difficult for countries to criminalise it, some have done so. Other countries released documents or drafts of documents relating to crypto regulation and taxation. Singapore is now the most recent of those countries.
Singapore is one of the most influential countries in
How the Document Compares to Global Examples
The Inland Revenue Authority of Singapore released the 19-page document draft last Friday. Titled “IRAS e-Tax Guide (Draft) / GST: Digital Payment Tokens”, it takes a stance similar to a document draft released by the UK late last year.
In short, the document stops just short of legally defining cryptocurrency as money. As a result, it is likely to not be susceptible to taxes like income tax but may be susceptible to a Goods and Services tax. Here, we’ll take a look at the document and what it may mean for crypto. This differs from the UK ruling that cryptocurrency is not money but can be taxed as income or capital gains.
Any changes in the final approved draft of the document will take effect on New Year’s Day, 2020. Keep in mind, however, that the draft is still a working document. Organisations and businesses in Singapore have three weeks from the day of release to comment on the document. That leaves from July 26 to January 1 for IRAS to finalise the draft.
There are two main takeaways in the draft. The first is that any resulting laws would only impact cryptocurrency used as a means of exchange for goods and services. Further, exchanging crypto for other crypto or for fiat will not be subject to the tax.
These takeaways are significant for a number of reasons. The first of those is that it actually encourages using cryptocurrency as a store of value, as is the case in places with viable fiats like Turkey and Venezuela. It could be that Singapore does not feel threatened in this regard because it has an extremely stable fiat. While the currencies in Venezuela and Turkey may fluctuate by 300% from one week to the next, the Singapore dollar’s value has been stable to within two cents for the last year and a half.
In countries with a fiat more stable than Bitcoin, people are more likely to use cryptocurrencies as an investment than as a currency or store of value. Because taxes do not impact money made on crypto and crypto trading, legislation encourages investment and trading.
Why the Change?
According to the document, the reason for the move is to prevent double taxation of cryptocurrency. Under previous legislation, crypto was taxed with a sales tax or income tax and then taxed again under goods and services. In other words, the buyer and seller were both taxed for the same transaction. Now the seller will be taxed for the transaction but not the buyer, similar to the tax system for fiat currencies.
IRAS sees the move as being more in step with how countries around the world are starting to treat cryptocurrency as a reflection of its increasing adoption. By treating crypto more like a fiat, the legislation lends credibility to crypto and may encourage its increased adoption and use as a currency.
Other Elements of the Document
The document also has an interesting take on mining. Mining, after all, is fairly unique to crypto in that it generates value without purchase or sale.
Income from mining, under the legislation, would not be taxable unless it was done as a service to another party.
Further, transactions through intermediaries remain taxable because the intermediary is essentially performing a service.
Most of the rest of the document dealt with general things like the definitions of different types of crypto. It also discussed taxation on things like international purchases.
It will be interesting to see what changes are put forth during the document’s editing process as well as how the changes are received. Overall, the legislation shows Singapore as a relatively crypto-friendly country. Ideally, other countries in their position — those with stable fiats — could do worse than enact similar rules.