Singapore is renowned worldwide for its market-based economy, especially for its free, innovative and business friendly approach. Which is why the decision to tax bitcoin transactions as a goods and services tax (GST) is all that more important. With governments around the world still confused on how to approach bitcoin, the Inland Revenue Authority of Singapore (IRAS) has provided clear guidelines on how to tax bitcoins, which is a step in the direction of governmental regulation. While Singapore isn’t the first country to specify that the cryptocurrency is taxable, their clear tax provisions may become the standard worldwide. And that might be a good thing for the bitcoin universe.
Last year saw the rise of the cryptocurrency, making bitcoin a household name, ubiquitous but not fully understood. While the digital currency has been around for over five years, bitcoin’s massive expansion of popularity caught the attention of governments worldwide. But as a currency existing solely in the ether of the Internet, no one really seemed to understand how to approach regulating and taxing the currency.
For example, late summer last year Germany clarified how it viewed bitcoins, as personal money, which meant that it was taxable to the individual via sales and capital gains tax. But its tax law is unclear as to how it will be implemented and how virtual stores that accept bitcoins will be taxed. Later in the year, Slovenia issued a statement that said any income (regardless of what form of currency was used) is taxable as a general income tax. But both Germany and Slovenia left too many questions unanswered.
The United States Federal Reserve weighed in on bitcoin too saying, “virtual currencies like bitcoin have legitimate uses and should not be banned.” But without clear guidelines from the Internal Revenue Service, business owners, merchants, investors and individuals who have bitcoin assets are left in a legal gray area, unsure if their digital funds are taxable, and if so, how. That’s where Singapore comes back in.
The IRAS has given a clear and concise set of guidelines for bitcoin taxation. It breaks down like this: if you make money through transactions, like selling goods for bitcoins, they are taxable as income tax. If you make money through investments, otherwise known as capital gains, they are taxable at the current zero percent tax rate. Singapore is very investor friendly. Bitcoins are also taxable in a second way, as a GST. Basically a GST means that if the transaction involves real money or services it is taxable (i.e. buying and selling bitcoins with dollars, or paying for services with bitcoins). However, if there is no real world goods or services, like paying for vitual clothing for your World of Warcraft avatar with bitcoins, then the transaction is not taxable. You can find a full list of the rules the IRAS has set out here.
While it is interesting (and perhaps tedious) to outline what is and isn’t taxable, the real thing to focus on is how Singapore’s tax rules will affect the global treatment of the decentralized currency. Singapore has been looked at as an example of how the free market can excel, rated as the second freest economy in the world in 2013 just behind Hong Kong. And while staunch libertarians might see any taxation as a bad thing, setting a global standard, especially one as friendly as the IRAS tax rules, would give the cryptocurrency another level of validity, which it seriously needs.
Ultimately, bitcoin users need to embrace taxation as a road that leads to acceptance as a globalized alternative currency. While every nation will have different tax laws in the beginning, which will initially make doing business in multiple countries more difficult, the potential of a true global economy exists, free of a centralized bank and therefore bound to its community, to its users. Singapore’s new taxation may be just what bitcoin needs.
Singapore Taxes Bitcoin: How New Taxation May Be Exactly What Bitcoin Needs
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