Singapore
plans to exempt cryptocurrencies that are intended to function as a
medium of exchange from Goods and Services Tax (GST) — the local
equivalent of Value-Added Tax (VAT).
The news was revealed in a draft e-tax guide published by the Inland Revenue Authority of Singapore (IRAS) on July 5.
The
proposed exemption, if accepted, is set to take effect on January 1,
2020, and will overhaul the current system wherein the supply of digital
payment tokens is treated as a taxable supply of services.
IRAS
outlines that until now, cryptocurrencies that function — or are
intended to do so — as a medium of exchange have been treated as a
barter trade that results in two separate supplies: namely a taxable
token supply and a supply of the relevant goods and services.
The document sets out the two proposed core changes to taxation rules in future as follows:
“The
use of digital payment tokens as payment for goods or services will not
give rise to a supply of those tokens; and (ii) The exchange of digital
payment tokens for fiat currency or other digital payment tokens will
be exempt from GST.”
In its outline, the IRAS cites
bitcoin, ether, litecoin, dash, monero, XRP and zcash as
cryptocurrencies that meet its definition of a digital payment token
designed to function as a medium of exchange.
The IRAS notably
excludes fiat-pegged crypto assets — such as certain stablecoins — from
its definition of a digital payment token, meaning they will continue to
be taxed under GST after January 2020.
In a section devoted to
cryptocurrency mining, the IRAS proposes that in most cases the new
rules will exempt token rewards generated by mining, noting that:
“There
is generally no sufficiently close nexus between the service provided
by the miner to the persons whose transactions are verified, and the
mined tokens that the miner received from the blockchain ecosystem. The
parties paying the mined tokens are also not identifiable.”
By
contrast, where “a miner performs services to an identifiable party or
parties, in return for a consideration, this constitutes a taxable
supply of services,” the document states.
The tax authority seeks
feedback from businesses in the crypto sector on its proposed changes,
which must be submitted before 26 July 2019.
In late June, Cointelegraph reported that Singapore’s central bank had held discussions with Facebook about its upcoming libra token — which is, as the Libra white paper revealed, to be pegged to a basket of bank deposits and short-term government securities held in reserve.
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