The double tax on cryptocurrencies affects their widespread use in the country as people are discouraged by the high costs that come as a result. Putting an end to GST taxation of cryptocurrencies will encourage more people to buy cryptocurrencies.
Singapore, through the Inland Revenue Authority of Singapore (IRAS), has put out a proposition to end the Goods and Services Tax (GST) that is currently applied to cryptocurrencies. The tax means that when people use cryptocurrency for the purchasing of goods or services, they are taxed twice. Transactions involving cryptocurrency were viewed by the IRAS as barter trade that results in two different cases of supply. The first supply would be that of the digital asset itself and the second supply would be that of the goods paid for using the cryptocurrency. The IRAS has put forward the proposition for implementation starting on the 1st of January 2020 and the body will be open to comments and suggestions until the 26th of July 2019.
Changes to the system of taxation applied to cryptocurrencies is necessary as it amounted to double taxation, the IRAS said. Individuals, businesses and firms that have a supply of cryptocurrencies were at a disadvantage in their endeavor to further their business interests due to them being required to pay GST. The IRAS said that by doing away with GST, Singapore would become more aligned with global trends and developments. In countries such as Australia, GST on cryptocurrencies was done away with two years ago. The removal of GST encourages online crypto trading and offers the industry a fertile breeding ground.
The Application Of GST Exemption
The IRAS has specified that there is a certain type of digital asset that will be exempt from the GST. The exemption will only apply to cryptocurrencies that qualify as digital payment tokens. Tokens that represent ownership rights that have been applied to a specific property will still be subject to GST. The revenue authority has already compiled a list of cryptocurrencies that are exempt from the tax. They have also given an outline of the qualities that a digital asset must possess in order for it to be exempt from the GST.
Some of the cryptocurrencies that are exempt from GST include Bitcoin, Litecoin, XRP, Dash, ZCash and Monero. The IRAS also says that a digital token payment should not be based on the value of any fiat currency. A token that has its value pegged to a fiat currency such as the US dollar will be considered under a different list of financial services such as derivatives and not as a digital payment token.
Under the terms stipulated by the IRAS, stablecoins such Tether are not exempt from GST. This is because Tether is pegged to the US dollar and therefore, according to the IRAS, it falls in a different category of financial services. When Facebook’s Libra comes to be, it will also not qualify as a digital payment as the value of that cryptocurrency will be pegged against a basket of currencies. Although Libra is specifically designed to encourage seamless e-commerce across the world, it will still not be considered as a digital payment under the rules of the IRAS.