IRAS considering GST exemption for Digital Payment Tokens

Introduction

Digital payment tokens /Cryptocurrencies are a taxable supply of services as per current GST rules. Business involves in the sale, issue or transfer of such tokens for consideration by a GST-registered business is subject to GST. This results in double taxation as taxable supply of the token and a supply of the goods or services. Accordingly GST exemption for Digital Payment has been in consideration by regulators.

The Inland Revenue Authority of Singapore (IRAS) have drafted a new regulation destined to exempt Digital Payment Tokens from Goods and Services Tax (GST) for above mentioned purposes.

Anyone dealing in digital token / cryptocurrencies including Buying and selling digital payment tokens; or Using digital payment tokens as payment/consideration; or Charging a fee or commission to facilitate the transfer, purchase or sale of digital payment tokens; or(iv) Issuing digital payment tokens, such as through an Initial Coin Offering (ICO).

Key features in tax guide for GST exemption for Digital Payment Tokens

In this draft guide, IRAS described a digital payment token as “a digital token which have the following characteristics:

  1. It is expressed as a unit,
  2. It is fungible,
  3. It is not denominated in any currency, and is not pegged by its issuer to any currency, and,
  4. It is, or is intended to be, a medium of exchange accepted by the public, without any substantial restrictions on its uses as consideration.

But it does not include:

  1. Money,
  2. Anything which, if supplied, would be exempt supply under Part I of Fourth Schedule to the GST Act for a reason other than being a supply of a digital token(s) having the characteristics of (a) to (d);
  3. Anything which gives an entitlement to receive or to direct the supply of goods or services from a specific person or persons and ceases to function as a medium of exchange after the entitlement has been used.”

This definition encompasses for instance Bitcoin, Ethereum or Litecoin; but does not concern online game credits or loyalty points issued by retailers.

Under the new rules, with effect from 1st January 2020, the following changes will take effect:

  • The use of digital payment tokens as payment for goods or services will no longer give rise to a supply of those tokens. That is, if you use digital payment tokens to pay for the purchase of goods or services, you need not account for GST on the use.
  • A supply of digital payment tokens in exchange for fiat currency or other digital payment tokens will be exempt from GST. Therefore, the supply of such tokens, being an exempt supply, will not contribute to your annualtaxable turnover for the determination of your liability for GST registration.

The GST treatment for digital tokens/virtual currencies/cryptocurrencies that do not qualify as digital payment tokens remain unchanged. That is, supplies of such tokens will continue to be regarded as taxable supplies of services, unless they fall under the prescribed list of exempt financial services under Part I of the Fourth Schedule to the GST Act.

IRAS gives the following example in its draft: “GST-registered Company E issues Digital Payment Token X to the public in Singapore via an ICO in exchange for Singapore dollars. With effect from 1 Jan 2020, E will report the proceeds received for the Digital Payment Token X as its exempt supplies in its GST return.”

There is however no change for the treatment of supplies of goods and services by intermediaries, they will still be subject to GST for the applicable companies.

For a comparison of the GST treatment of digital payment token transactions before 1 Jan 2020 and that applicable from 1 Jan 2020, please refer to the below table:

Overview of GST treatment of Digital Payment Tokens (DPT)
Before 1 Jan 2020 and From 1 Jan 2020
Description Before 1 Jan 2020 From 1 Jan 2020
Provision    of    DPT    as payment Treated as a taxable supply of services Will  be  disregarded  as  a supply
Exchange of DPT for fiat currency or other DPT Subject to GST (standard- rate/zero-rate). GST-exempt (zero-rated if supplied to an overseas person and directly benefitting an overseas person or a GST-registered person in Singapore).
Supplies  of  services  by intermediaries Taxable. No    change    i.e.    remain taxable.
Mining services Not a supply unless services are made to identifiable parties for a consideration. No change.
Time of supply Supply takes place at the earlier of when invoice is issued or consideration is received. No change.
Value of supply
a) Supply of DPT as payment
b) Supply of DPT for money
c) Supply of DPT for other digital tokens (services)
d) Supply of DPT for other DPT.
a)  OMV of DPT
b)  Money received less GST chargeable
c)  OMV       of       DPT supplied
d)  OMV       of       DPT supplied
a) Nil (as no longer regarded as a supply)
b) Money received or realised exchange gain/loss
c) Nil (regarded as payment – same as a))
d) OMV of DPT received or realised exchange gain/loss
Determining   where   the customer belongs See paragraph 9.2. No change.

The draft is currently up for public consultation. You are invited to give your comments to IRAS regarding this guide by completing Annex 1 of the document and sending it, preferably by email, before 26 July 2019 to gstfeedback@iras.gov.sg .

Click here to read the full draft GST guide on IRAS’s website.

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