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The Singaporean government’s taxation agency is proposing to remove goods and services tax (GST) from cryptocurrency transactions that function or are aimed to function as a medium of exchange.
The Inland Revenue Authority of Singapore (IRAS) published last Friday an e-Tax draft guide for treatment on what it calls the “Digital Payment Tokens,” seeking to exempt any entity dealing with such digital assets from GST liabilities.
If the draft guide passes into legislation, starting from Jan. 1, 2020, the following changes will take effect to “better reflect the characteristics of digital payment tokens:”
(i) The use of digital payment tokens as payment for goods or services will not give rise to a supply of those tokens
(ii) The exchange of digital payment tokens for fiat currency or other digital payment tokens will be exempt from GST.
The IRAS said the e-Tax guide is still in its draft form and that the Ministry of Finance will be holding a public consultation from now until July 26 on the “legislative amendments for digital payment tokens.”
The draft guide also sets out detailed parameters on how digital payment tokens are defined, which should have all of the listed characteristics below:
a) It is expressed as a unit
b) It is fungible
c) It is not denominated in any currency, and is not pegged by its issuer to any currency
d) It can be transferred, stored or traded electronically
e) It is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, without any substantial restrictions on its use as consideration.
“Examples of digital payment tokens are Bitcoin, Ethereum, Litecoin, Dash, Monero, Ripple and Zcash,” the IRAS added in the proposal.
Notably, the agency specified that stablecoins, a type of cryptocurrency designed to have a value pegged to a fiat currency, may not qualify to be GST exempt.
“Any digital token that is denominated in any fiat currency or with a value pegged to any fiat currency will not qualify as a digital payment token,” the IRAS said in the draft. “For example, a digital token pegged to US dollars will not qualify as a digital payment token.”
IRAS said the effort to end GST liabilities on cryptocurrencies follows worldwide development and growth in the space that has led various jurisdictions to have reviewed their stance. “Similarly, IRAS has reviewed its GST position to keep up to date with these developments,” the agency said.
Under the current framework, the supply of digital payment tokens is still seen as a taxable supply of services.
“Therefore, the sale, issue or transfer of such tokens for consideration by a GST-registered business is subject to GST. When the tokens are used as payment for the purchase of goods or services, a barter trade resulting in two separate supplies arises — a taxable supply of the tokens and a supply of the goods or services,” the IRAS said in the draft.
In October 2017, lawmakers in Australia passed a piece of legislation to end what was called double taxation, exempting the liability for paying goods and services tax (GST) on cryptocurrency purchases.