Inland Revenue Authority of Singapore (IRAS) Announced an Exemption of GST on Digital Payment Tokens
By Garrett Wan
Last Friday, July 5, the Inland Revenue Authority of Singapore (IRAS) announced an exemption of Goods and Service Tax (GST) for digital payment tokens which will take effect on January 1, 2020. The IRAS defines digital payment tokens as those that are:
(a) expressed as a unit;
(b) fungible;
(c) not denominated in any currency, and are not pegged by its issuer to any currency; and
(d) are, or are intended to be, a medium of exchange accepted by the public, without any substantial restrictions on its uses as consideration.
In order to avoid repeated excise tax collection, the IRAS announced that under the following scenarios, purchases or services will not be subjected to GST:
(a) the use of cryptocurrency to purchase taxable goods or services
(b) the use of cryptocurrency to exchange for fiat currency or other forms of digital payment tokens
Under the Good and Services Tax Act (Cap. 117A) and IRAS’s current regulations, the issuance (or provision) of cryptocurrency is a taxable duty of consumption tax. Yet, the purchase of any taxable goods and services with cryptocurrency incurs GST, resulting in double taxation.
Now, let’s look at it through a legal lens. Singapore’s Goods and Services Tax (GST) is a form of tax that is widely levied on goods and services that take place in Singapore, making it similar to Value Added Tax (VAT) as implemented in other countries. Those forms of taxes are vastly different from China’s Consumption Tax. Singapore’s GST is a turnover tax that is neutral with universal expropriation. The burden of the tax is borne by the consumer with the tax deduction system being proportionate to the tax incurred. The current GST rate in Singapore is 7% and all businesses in Singapore must register themselves for GST when their taxable turnover exceeds $1 million.
In contrast, the general taxpayers under China’s VAT policy are usually companies with an annual taxable income of 5 million RMB. These companies are subjected to a VAT rate of 13%, with the lowest being 9% and 6% respectively. Companies with an annual taxable income of 5 million RMB or less are considered taxpayers of a smaller scale and are taxed at a statutory rate of 3% or a special tax of 5%. Singapore’s GST and China’s VAT are calculated in the same method with Input Tax being deducted from Output Tax, a tax charged with the sale of goods or services.
Goods and Service Tax (GST) imposed on the issuance of digital payment tokens (or cryptocurrency) can be analogized to the GST applicable to the issuance of prepaid card, vouchers and gift cards, etc. To put it simply, in order to prevent cases of tax evasion or abuse of tax regulations, the European Union (EU) has adopted a method of taxation that generates tax liability when a single purpose commercial prepaid card is issued. This lies in contrast to China where VAT is exempted when the same single purpose commercial prepaid card is issued. Instead, the income generated through the handling, settlement or management services of the card is subjected to local VAT. When the cardholder applies the single purpose prepaid card to purchase goods or services, the seller of the goods or services will then be taxed VAT according to the current regulations.
Consider the legality of taxing cryptocurrency. The Inland Revenue Authority of Singapore (IRAS) has adopted a taxation method similar to the taxation Chinese tax authorities has imposed on single purpose prepaid cards. Bearing in mind that Goods and Services Tax (GST) is regarded as turnover tax, in principle, since the process of issuance or the acquisition of a certain cryptocurrency through mining does not involve the sale of any goods or services, that very act of issuance or acquisition should not be subjected to GST. Instead, GST and output tax should be imposed on the consumer or service provider when cryptocurrency is used to purchase taxable goods or services alongside its price of purchase or service fees respectively.
To conclude, the decision made by the Inland Revenue Authority of Singapore (IRAS) to exempt digital payment tokens from Goods and Service Tax (GST) reflects the principle of tax equity as it avoids double taxation, thereby preventing the tax burden from weighing in on its final consumer. At the same time, IRAS has given a clear scope of what it considers taxable goods and services, ensuring that the foundation of Singapore’s tax regulations remain undisrupted by the advent of blockchain technology.
Disclaimer: The article published above is representative of the views of the author only and is not in any way to be taken as a form of legal advice or advice issued by TALENTA Pte Ltd.
No part of this article may be reproduced or used without the written authorization of the Institute, including graphic materials such as pictures and videos. If interested in redistribution or discussion on related topics, feel free to contact TALENTA Pte Ltd for more.
About Author:
Garrett Wan (Legal Director)
Garrett graduated from the National University of Singapore with a lawyer’s certificate, securities trading certificate, and Futures trading certificate. He used to work in several of the world’s top 500 companies and was responsible for their international business. He then became a blockchain project lawyer, and helped dozens of companies to complete the legal frameworks and projects onshore and offshore, including Usechain, Showhand, Youlive, etc. He is now one of the most sought after legal adviser in the Singapore blockchain sector.
