The Bitcoin ecosystem might be taking baby steps in Singapore, but looks set to run up against the taxman where the goods and services tax (GST) and income tax are concerned, say Bitcoin pioneers here.
While the Inland Revenue Authority of Singapore (IRAS) has not made any explicit pronouncements about the tax treatment of the cryptocurrency so far, parts of it have progressively trickled to the community over previous months.
"The IRAS has... sent me several guidances for the treatment of Bitcoin as income and how to account for GST, most of which are very positive," David Moskowitz, who runs local Bitcoin exchange platform Coin Republic, told The Business Times.
IRAS did not respond to BT's queries by press time yesterday.
According to Mr Moskowitz, the IRAS told him that Bitcoin transactions for real goods or services by GST-registered firms were not exempted from GST. This means that such firms will attract the taxation rate of 7 per cent.
For now, the impact will be muted, as GST registration is only compulsory for firms who make more than $1 million in taxable turnover over four quarters, or those that expect to over the next 12 months. There are only a handful of merchants here who accept Bitcoin - 14, at last count. Most, if not all of them, do not have to be GST-registered.
Even so, according to the guidelines that Mr Moskowitz says IRAS gave him, some complexity might exist for Bitcoin sellers here if they are eventually GST-registered. How Bitcoin transactions are treated depends on whether the sellers are considered agents or principals.
An agent just facilitates the transaction while a principal buys Bitcoin and sells it. An agent will only have to charge and account for GST on the commission received, while the principal will have to do it for the full amount received.
"Companies here who are buying and selling as a principal could be at a disadvantage to companies outside of Singapore . . . they might have to move towards the agent model," said Mr Moskowitz.
Tax regimes for Bitcoin activity have begun to take shape globally. Germany and Norway are levying capital gains tax on profit from the currency. In the UK, Bitcoin gained ground after tax authorities reversed a decision to levy value-added tax on sales involving the currency last month.
Income tax is yet another issue. Companies that exist to buy and sell Bitcoins will be taxed based on the gains from their sale of the currency, according to the guidelines provided to Mr Moskowitz. But if the Bitcoins are part of the firm's investment portfolio for the long term, the gains from the sale will be considered capital in nature and not taxable.
How countries tax Bitcoin will be closely watched as an indicator of general policy on the cryptocurrency's legitimacy.
So far, the Monetary Authority of Singapore (MAS) has only warned the public about the perils of trading Bitcoin. The understanding is that there is no intention to regulate it here yet.
"MAS and (the) government of Singapore are one of the few responsible (ones) around the world and don't need to be worried about Bitcoin's success, so I wouldn't expect any change of direction from their side," said Tomas Forgac, who created BTCPOS, a Bitcoin point-of-sale system for merchants.