The Inland Revenue Authority of Singapore is proposing to end the Goods and Services Tax that is imposed on cryptocurrencies.
Under the existing rules, users of cryptocurrencies are taxed twice when they use them to pay for goods and services. This is because the IRAS treats such a transaction as a barter trade that results in two separate cases of supply – a supply of the digital payment token as well as the supply of the services and goods paid for using the digital asset.
Consequently, the IRAS is now seeking feedback with a view of making the proposed change starting January 1st 2020. Comments will be welcomed until July 26th.
Per the IRAS, the exemption from the GST will only apply to those cryptocurrencies that qualify as digital payment tokens. Digital tokens such as those that represent ownership rights to specific property will still be subject to the Goods and Services Tax.
To assist taxpayers, the IRAS has already outlined the qualities of digital payment tokens and this includes fungibility. Among the cryptocurrencies that the IRAS lists as qualifying to be digital payment tokens include Bitcoin, Ethereum, Dash, Litecoin, Monero, XRP and ZCash.
Additionally, the IRAS also requires digital payment tokens to not be based on the value of other fiat currencies:
…a digital token pegged to US dollars will not qualify as a digital payment token but may instead fall under the list of financial services (such as derivatives)
This effectively rules out stablecoins such as Tether which is pegged to the U.S. dollar. Facebook’s Libra, whose value will be pegged to a basket of currencies, will also not qualify as a digital payment token per IRAS’ definition. This is despite one of the goals of the proposed cryptocurrency being to enhance frictionless cross-border commerce.
However, Tether and Libra qualify as Financial Services under Singapore’s tax laws which also makes them exempt from GST.
Per the IRAS, the change is necessary since it amounted to double taxation. This is because individuals or firms that supplied cryptocurrencies in the furtherance of their business or in the course of doing business would pay GST on this. Additionally, they would also pay GST if they used the cryptocurrencies to pay for services or goods.
The IRAS has indicated that this move is aimed at ensuring Singapore is up to date with developments in other parts of the world. Two years ago, for instance, Australia eliminated GST on users of cryptocurrencies for buying or selling them or using them to pay for goods and services.
Prior to the amendment, Australians were paying 10 percent GST for buying or selling cryptocurrencies. They were also paying another 10 percent for any purchases for goods and services made with the digital asset.