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  • Writer's pictureDave Ananth


Updated: Oct 10, 2018

Cryptocurrency, a form of digital currency is the new ‘digital money’ of the millennium. It is cash that you cannot see nor touch as it is not tangible. However, it is in the internet, mostly stored in a digital wallet and is being traded in many countries. Cryptocurrency is created by ‘miners’ using high powered computers using massive amounts of electricity. If you have not heard about this digital currency, then you are lagging behind. It is the buzz word today with everyone jumping onto the bandwagon, and some not knowing what they are getting into.

Punters predict it will change the financial landscape completely, sceptics, on the other hand, believe it would not last, akin to the Dutch Tulip Mania in the 16th century. Tulip mania was the first recorded financial bubble. Tulips became fashionable and there was a mad rush to purchase tulips – causing their prices to increase to monumental levels which after a period, dramatically collapsed. Many are cautious – with one of them being Richard Harris, who wrote a damning article equating bitcoins to speculative derivatives and why it could trigger the next global financial crash. Some countries have banned this form of currency while others have gone ahead to recognise it, amending the law and regulations to suit.  My intention in this article is not to advise potential investors. I do not have a crystal ball for that. Instead, this article discuss GST options for the Government to consider in giving life to Bitcoin, which is the best-known cryptocurrency.

Cryptocurrency in Malaysia

Bank Negara Malaysia (BNM) has recently reiterated its stand (first madein 2014) that bitcoin and similar cryptocurrencies are not legal tender in Malaysia, and that it will not regulate digital currencies. Members of the public have been advised to evaluate associated risks, especially since users of digital currencies will not be covered under established disputed resolution arrangements, in the event of any dispute or losses, which are in place for regulated financial institutions. However, BNM recognises that digital currencies are here to stay, given its increasing functionality of its use, growing adoption and its global nature. Therefore, it will not ban cryptocurrency transactions. According toBNM’s Deputy Governor Abdul Rasheed Ghaffour, “cryptocurrencies are not outlawed in Malaysia because a ban will curb innovation and creativity” but he also highlights that “its usage has no backing from the public financial institutions.” Therefore, to strike a balance, BNM has turned its focus on making digital currencies transparent in Malaysia by compelling digital currency exchange businesses to report their activities. It has released an exposure draft (ED) on the invocation of reporting obligations on digital currency exchange business as reporting institutions under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA).  The proposed policy covers legal obligations, requirements and standards required of digital currency exchangers, which includes performance of risk assessments and customer due diligence, reporting and transparency requirements, implementation of adequate management information system, record-keeping requirements, etc. – with the aim of providing relevant information for the public to better understand and evaluate risks associated with the use of digital currencies. The ED also addresses concerns that cryptocurrency is unregulated and allows for personal data to be protected – an appealing combination for criminals and tax evaders. As BNM has taken the stand that cryptocurrencies are not legal tender in Malaysia, the Malaysian tax and Customs authorities must decide the tax and GST treatment respectively for cryptocurrencies. The Government needs to consider if it wishes to give the meaning of currency to Bitcoin or treat it as an asset. Either way, this will have income tax and GST repercussions. In Malaysia, only currency notes and coins issued by BNM can be legal tender, pursuant to section 24 read together with section 20 of the Central Bank of Malaysia Act 1958. No other tender is valid. To include digital currency definitions in the legislation, the law needs to be amended.  For example, section 2 of the Goods and Services Tax Act 2014 definesmoney to “include currencies whether of Malaysia or any other country.” The Malaysian GST legislation, under the Goods and Services Tax (Exempt Supply) Order 2014, also provides that a supply of currency is not a supply for GST purposes. Therefore, the Malaysian GST legislation does not define digital currency and consequently, there is no guidance specifically for the supply of digital currency. Cryptocurrency in the European Union In 2015, the European Court of Justice (ECJ), in Skatteverket v David Hedqvist (Case C-264/14), ruled that the exchange of bitcoin for a traditional currency is a supply of service for consideration. Such service is exempt from VAT on the basis of the ‘currency’ exemption provided under article 135(1) of the VAT Directive[1]. The ECJ examined the following:

“The first question: whether a supply

The ECJ held that the bitcoin virtual currency with bidirectional flow, which can be exchanged for traditional currencies in the context of exchange transactions, cannot be characterised as ‘tangible property’ within the meaning of the VAT Directive, art. 14 because virtual currency has no purpose other than as a means of payment. The same is true for traditional currencies, since it involves money that is legal tender. Thus, the transactions, which consist of exchanging different means of payment, are not a supply of goods.However, the ECJ held that the transactions constituted the supply of services for a consideration that has a direct link with the service provided, that is to say, the supply of services for consideration within the meaning of the VAT Directive, art. 2(1)(c) (para. 30 of the judgment).

The second question: whether exemption applies

The ECJ held that bitcoin virtual currency, being a contractual means of payment, cannot be regarded as a current account or a deposit account, a payment or a transfer. Moreover, unlike a debt, cheques and other negotiable instruments referred to the VAT Directive, art. 135(1)(d) the bitcoin virtual currency is a direct means of payment between the operators that accept it. Therefore, transactions such as those in the main proceedings do not fall within the scope of the exemptions provided for under that provision.The ECJ held that to interpret art. 135(1)(e) as including only transactions involving traditional currencies would deprive it of part of its effect. Thus, exemption under art. 135(1)(e) applied to the supply of services such as those at issue (para. 53 of the judgment).

The ECJ held that the supply did not fall within the exemptions laid down in the VAT Directive, art. 135(1)(f).”

Cryptocurrency in Singapore In Singapore, the Inland Revenue Authority of Singapore (IRAS) has moved forward and recognised cryptocurrency as a service which has a GST and tax impact. Bitcoin is subject to Singapore GST at 7%. Singapore considers that cryptocurrency is not a currency in the ordinary sense and therefore, the exemptions given to financial services do not apply for GST purposes. The IRAS has come up with guidelines on virtual currencies as mode of payment. It provides that:

“Generally, businesses that accept virtual currencies as payment for goods or services should record the sale based on the open market value of the goods or services in Singapore dollars. The same applies for businesses which pay for goods or services using virtual currencies.
If the open market value of the goods or services that would have otherwise been exchanged in Singapore dollars cannot be determined (e.g. the good or service is only traded with virtual currencies), the virtual currency exchange rate at the point of the transaction may be used.”

The IRAS further adds:

“Virtual currencies (e.g. Bitcoins) are not considered as 'money', 'currency' or 'goods' for GST purposes. Instead, the supply of virtual currency is treated as a supply of services, which does not qualify for GST exemption.”

Cryptocurrency in Australia and New Zealand Australia has recently amended their GST Act 1999 and GST Regulations 1999 to introduce GST treatment of digital currency, via Treasury Laws Amendment (2017 Measures No. 6) Act 2017 (which received royal assent on 30 October 2017) and Treasury Laws Amendment (2017 Measures No. 3) Regulations 2017 respectively. The amending legislation provides that supplies and acquisitions of digital currency are generally disregarded for GST purposes. A supply of digital currency is only recognised for the GST purposes if the supply is made in exchange for money or digital currency. With this amendment, it ensures that supplies of digital currency receive equivalent GST treatment to supplies of money, particularly foreign currency.The amending legislation to the Australian GST Act 1999 is as follows: “Schedule 1—GST treatment of digital currency. A New Tax System (Goods and Services Tax) Act 19991 Subsection 9‑10(4) Repeal the subsection, substitute:            

(4)  However, supply does not include:                    

(a)  a supply of *money unless the money is provided as *consideration for a supply that is a supply of money or *digital currency; or                    

(b)  a supply of digital currency unless the digital currency is provided as consideration for a supply that is a supply of digital currency or money.

2 Subsection 9‑85(2) Repeal the subsection, substitute:            

(2)  In working out the *value of a *taxable supply, any amount of the *consideration for the supply that is expressed in:                    

(a)  a currency other than Australian currency; or                    

(b)  *digital currency;                                 

is to be treated as if it were an amount of Australian currency worked out in the manner determined by the Commissioner.” In New Zealand, the Inland Revenue Department is still in the work programme stage with scoping undertaken and will soon come out with guidelines.

Malaysia – The next steps

Malaysia will need to consider her options before deciding, and as stated above, different countries have taken different approaches. 

Judging from how the European Union, Australia and Singapore are dealing with cryptocurrencies, for starters, lawyers and consultants must acclimatise themselves to the jargon in this new cryptocurrency world and the definitions. Examples would include commonly used terms such as “mining”, “blocked chain”, and the different types of currency in the market – Ripple, Etheruem, Litecoin and the like.

Enforcement and compliance issues must also be addressed for this rising digital currency. Imposing a ban will not make cryptocurrency go away, punters will use different jurisdictions, platforms and friends to trade and cash out. Like or not, it is here to stay, at least for some time. BNM has recognised that and has taken the first step in developing cryptocurrency regulation policies, as discussed above, and its decision to allow it with guarded regulations is more advantageous. By bringing it from under the table to on the table, it will allow the government to tax profits arising from cryptocurrency transactions which will lead to increased tax revenue.  The enforcement of cryptocurrency regulations, however, is another ball game all together.

[1] Article 135(1)(e) of the VAT Directive provides that transactions ‘concerning currency, bank notes and coins used as legal tender’ are exempt from VAT.



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