Following the growth of online businesses, a growing number of online traders are open to the idea of accepting digital currencies such as Bitcoin as a medium of exchange. As the market continues to adopt virtual currencies as a form of payment, it is important to understand Singapore’s Goods and Services Tax (GST) regime that affects this mode of payment.
In January 2014, Singapore’s Inland Revenue Authority (IRAS) released information on their website that was to act as a guide for the public on GST regulations in regards to virtual currency transactions.
What is GST?
GST or Goods and Services Tax is one of the four pillars of Singapore’s overall tax structure. The other three pillars include property tax, personal tax, and corporate tax. At the time of writing, the current GST rate stands at about 7 percent.
In Singapore, a GST or a consumption tax is charged by a business every time it sells a product to another business or an individual. Key attributes of GST in the Asian country include:
- The company selling the product or service is responsible for collecting the levy and paying it the government.
- It is only GST-registered companies that charge GST. The qualification for registering for GST as a business is having an annual turnover of above 1 million USD. For small businesses that meet the 1 million annual turnover threshold, GST registration is voluntary. Unregistered companies and businesses neither have to remit or collect GST to the authorities.
- GST is also charged on the import of goods by the Singapore Customs.
- Not all goods and services are levied GST; for example, the sale and tenancy of residential houses, the importation of investment-oriented precious metals, and the provision of certain financial services.
- Professional services offered and Goods exported to international clients are liable for the GST tax, meaning no tax is charged on such goods and services.
- A GST registered company can claim credit for GST tax it has paid for its Input Tax and counterbalance it against the GST tax that it collected from its customers. On subtraction, the remaining amount will give the GST amount that is due from the company to the tax collector. What this means is the company only pays GST levies to the government on the amount of value it adds to its products and services.
In 1994, when GST tax was first introduced in Singapore, the rate of the tax was 3 percent. In 2003 and 2004, the rate of GST levies was increased to 4 percent and 5 percent respectively by the government. At present, the rate of GST stands at 7 percent.
Cryptocurrency Tax Treatment
Over the past 5-years, national tax authorities have been reluctant to issue guidance on the treatment of virtual currencies around the world increasing concerns for businesses. The situation is possibly more perplexing today than it has ever been.
Digital assets and other altcoins continue to grow in number leaving behind tax jurisdiction that includes the US and UK in developing systematic structures to their treatment. Countries such as China, South Korea, India, and Japan have decided to react differently to cryptocurrencies, imposing tough regulations making crypto trading in their countries difficult, costly, and illegal.
The Proposed Abolishment of GST on Cryptocurrency
Not too long ago, on 5th July 2019, Singapore’s Inland Revenue Authority issued a statement proposing a tax change in regards to crypto treatment under the Goods and Services Tax regime. The proposed GST Act, which coincides with the imminent Digital Tax that is to be effected on 1st January 2020, seeks to exempt GST levies on crypto transactions.
Under the proposed Act, the exchange of virtual currencies for other virtual currencies or fiat currencies will be exempt from GST levies in Singapore.
At the moment, the Ministry of Finance is holding a wide consultation with stakeholders until 26th July before coming up with the final draft of the Act.
Disclaimer: The presented information is subjected to market condition and may include the very own opinion of the author. Please do your ‘very own’ market research before making any investment in cryptocurrencies. Neither the writer nor the publication (TronWeekly.com) holds any responsibility for your financial loss.