On Friday (17 April), the a new e-tax guide was released by the Inland Revenue Authority of Singapore (IRAS) to address the gap in tax treatments for the so-called “digital tokens”. Digital tokens are the umbrella term for three cryptocurrency types namely (1) payment tokens; used to buy goods and services, (2) utility tokens; which represent a right to goods and services and (3) security tokens or digital securities.
Based on IRAS’ new guide, each crypto type has a new definition and corresponding tax treatment. The guide also utilises a fragmented approach for the crypto-currency industry that is still in its infancy that is meant to guide Initial Coin Offering (ICO) issuers, businesses and consumers.
Procedures for other obscure crypto events will also be clarified by the tax guide. For instance, airdropped payment tokens or those that come from a blockchain hard fork – called “windfall”- will be not be levied income taxes by the IRAS. Non-traditionally delivered cryptos will still be taxable on transactions, similar to other payment tokens.
Payment tokens such as bitcoin are considered to be “intangible property” instead of legal tender, according to IRAS’ guide. Consumers paying in bitcoin are considered as conducting “barter trade” for which goods and services are taxed, not the payment token itself. Businesses who can presumably value their goods’ tax burden against government-issued money metrics are also treated the same way.
As for a good or service whose value is natively determined in crypto, it becomes tricky to determine the corresponding tax burden. Because the IRAS has no “methodology to value payment tokens”, there is no decisive way to calculate the tax for a contractor who agrees to do a job for 3 bitcoins, for instance.
Thus, tax payers must determine themselves a “reasonable and verifiable” exchange rate from widely available services like Coinbase and Binance, IRAS mandated.
Conversely, a taxable event for the user is “unlikely” to be triggered by utility token transactions. The taxable event “will be treated as prepayment” if they are acquired as a right to future services. Indeed, under the IRAS guide, the use of utility tokens will be a deductible event.
Furthermore, security tokens are treated under the same loose tax laws that are applied to other securities in Asia’s tax haven. Security tokens are taxable only when classified as “revenue asset” being that Singapore does not tax capital gains on securities of any kind and it also taxes dividend minimally depending on the issuer.
Owing to the country’s investor-friendly tax scheme, security token ICO issuers keep all their raised capital. However, ICOs that issue utility tokens are not as lucky. The proceeds from utility tokens issuance are in fact deferred revenue which can be taxed as the goods are delivered.
Also, issuers of payment token ICO need to pay immediately, although it is “uncommon” according to the guide. For payment token ICOs, “an examination of the case facts may be required”, the guide stated.