Should Singapore waive GST on digital payment tokens?
TAX INCENTIVES and exemptions are some of the most effective ways to grow or spur innovation in a certain sector of the economy.
And accordingly, Singapore’s recent proposal to waive sales tax for goods and services paid for with digital payment tokens will immensely benefit the country’s cryptocurrency exchanges, blockchain managers, and entrepreneurs.
By waiving the 7 percent goods and services tax (GST), Singapore will also edge closer to Hong Kong in regards to tax friendliness to cryptocurrencies, claimed accounting firm PwC.
According to a partner in PwC’s Hong Kong corporate tax practice, Gwenda Ho, the move by Inland Revenue Authority of Singapore (IRAS) is likely to drive innovation in the blockchain development circles.
Ho said, ” In the past, when Singapore entities issued tokens through an initial coin offering (ICO), because the issuers did not want to incur extra compliance costs [through the GST], they would usually exclude Singaporean participants.”
An ICO for a cryptocurrency is a crowdfunding exercise often carried out by startups to fund their projects.
Coinciding with Singapore’s Ministry of Finance consultation on its draft GST (Amendment) Bill 2019 that ended last week, the IRAS issued a draft e-Tax guide which explains the proposed GST waiver.
Leveling the playing field for cryptocurrencies
“The IRAS recognizes 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,” said the guide.
This proposed exemption, however, will ensure that the playing field is equal for both cryptocurrencies and fiat cash, according to industry observers and stakeholders.
Furthermore, the exemption would also update Singapore’s taxation policy on sales which would make it comparable to that of Japan, Australia, and the EU, the ministry asserted.
So long as the token fits the definition of “digital payment token” within the IRAS guide, the proceeds from its ICO could potentially be GST exempt, according to Ho.
There were some 650 ICOs issued worldwide last year, which raised a combined US$16.7 billion, but in Asia, the combination of strict regulation and high rate of project failure has checked the issuance.
Asset managers to benefit?
According to IRAS definition, a digital payment token must be expressed as a unit and is “fungible” or mutually interchangeable by identical items, while not denominated nor pegged in any currencies.
The authority listed Bitcoin, Ethereum, Litecoin, Zcash, among others as an example of digital payment tokens.
In addition to that, the tokens should also be accepted by the general public as a medium of exchange, which excludes loyalty points and other gaming credits that are issued by retailers.
Meanwhile, cryptocurrency exchanges and asset managers could also be among the beneficiaries of the proposed GST waiver, according to PwC’s Ho.
At the moment, businesses in Singapore that provide cryptocurrency trading services or manage client investment are subjected to corporate taxes for onshore generated profits, similar to Hong Kong’s tax structure.
“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,” opined Ho.
If the proposed is waiver is adopted, it will become effective starting next year, which will, without a doubt, have a positive effect on the country’s cryptocurrency space.