Singapore’s tax agency is proposing an amendment to their taxation policy whereby transactions involving cryptocurrencies as a medium of exchange will be exempt from goods and services tax, or GST.
The Inland Revenue Authority of Singapore (IRAS), circulated a draft of this amendment on July 5, 2019.
The IRAS hopes to receive feedback and comments from businesses that deal in digital payment tokens. This public consultation will continue until July 26, 2019. If the feedback is satisfactory and the amendment is approved, the law will go into effect on January 1, 2020.
Clear Definition of the Exemptions Proposed
Essentially this proposal seeks to allow digital currencies to be treated as actual currency and not as a good or service, which is why they will be exempt from GST if the proposal is accepted.
The draft [PDF] says that under the law, the exchange of cryptocurrencies for either fiat currency or for another cryptocurrency will not be subject to GST. This is also the case for exchanging one fiat currency for another, which further indicates that Singapore is taking steps towards treating cryptocurrencies as viable alternatives to traditional money.
Another change that will occur if this proposal becomes law is that if digital tokens are used to pay for goods and services, there will not be an increase in the supply of tokens. Traditional money systems work under the same principle. This is another step Singapore is taking towards treating digital currencies as actual currency rather than a good or service or an investment.
Both of these changes indicate not only that Singapore is willing to treat cryptocurrencies as actual currencies, but they also understand the characteristics of digital currencies, including the fact that there is a finite number of coins from each cryptocurrency and that there are viable ways to convert money from one form to another.
Conditions of Exemptions Also Explained
The IRAS has taken care to define digital payment tokens to help determine what cryptocurrencies will be exempt from GST if this proposal becomes law.
They’ve said that digital currencies must be broken into units and must be easily interchangeable with another token of equal value, just like traditional money. They also should not be denominated based on their relative value to another currency. They must be able to be transferred, stored and traded electronically and must be accepted by the public or a section of the public as a viable currency.
While the IRAS did not provide a full list of the digital currencies that will be exempted from GST, they did provide a list of examples, which included Bitcoin, Litecoin, Ethereum, Monero, Dash, Zcash and Ripple. This list, while not comprehensive, appears to exclude stablecoins, meaning that these currencies will still be subject to GST.
The reason for this is likely that stablecoins, while they are considered cryptocurrencies, are invariably pegged to fiat currency, such as the U.S. dollar. The IRAS has mentioned that any such stablecoin will not be eligible if a transaction involving it were to generate a digital payment token and seek GST exemption.
This proposal is similar to one that was passed in Australia in 2017. Similar concerns about the taxation of cryptocurrencies were raised, which prompted the Australian bill. While it remains to be seen if Singapore will sign this proposal into law, it does show that governments worldwide are taking notice of cryptocurrencies are willing to recognize and treat them the same as traditional forms of money.