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Multinational professional services firm and one of the ‘Big Four’ auditors, PwC, praises Singapore’s move to exempt cryptocurrencies and digital tokens from sales tax when used to pay for goods and services.
Singapore is planning to exempt certain digital currencies from the Goods and Services Tax (GST) very soon, the report says. According to a partner in PwC Hong Kong’s corporate tax practice, this could have great benefits to cryptocurrency-related businesses.
Singapore-based companies have often found themselves obligated to pay tax twice on cryptocurrencies when using tokens to pay for goods or services. Currently, traders are taxed once when they purchase cryptocurrency and second time again when they use crypto to make payments.
However, on July 5, the Inland Revenue Authority of Singapore (IRAS) published a draft document that proposes the exemption of all entities operating with “Digital Payment Tokens” from having goods and service tax (GST) responsibilities. The draft recommends that the exemption becomes law beginning from Jan 1, 2020.
The document adds however that payments made in the form of stablecoins will not be eligible for the exemption, saying:
“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.”
Gwenda Ho, a partner in PwC Hong Kong’s corporate tax practice says that the waiver of the 7 percent goods and services tax (GST) would also bring the city-state closer to Hong Kong in terms of being a tax-friendly jurisdiction for cryptocurrencies. She added that the proposal by the IRAS could potentially spur more innovation from entrepreneurs in the field of blockchain-based services and solutions. She said:
“In the past, when Singapore entities issued tokens through an initial coin offering, because the issuers did not want to incur extra compliance costs [through the GST], they would usually exclude Singaporean participants.
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.”
She added that cryptocurrency exchanges and asset managers may also benefit from the sales tax exemption for tokens.
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.
The IRAS also defines a digital payment token as one that can be expressed as a unit, is “fungible”, meaning replaceable by another identical item, and is not denominated in or pegged to any currency. It cites Bitcoin, Ethereum, Litecoin, Dash, Monero, XRP, and Zcash as examples.
If this tax cut would be made, Singapore’s sales tax policy will be quite similar to some other jurisdictions, not just Hong Kong, but also Japan, Switzerland, the European Union, and Australia. The latter had recently suggested to exempt digital currency from new proposed restrictions on cash payments.
According to their Treasury’s draft, The Currency (Restrictions of the Use of Cash) Act 2019 establishes the cash payment limit of AUD 10,000 (USD 6,900) and makes it an offense to make or accept a payment or series of connected payments in cash in excess of this limit.