Over the last year countries around the world have been engaged in attempts to either understand the technology or ban it outright. Singapore appears to have a flexible approach to regulating bitcoin and digital currencies.
Jarrod Luo COO and co-founder of Tembusu Systems states that regulation in Singapore has been light. “[…] from what we can see it is aimed at trying to include cryptocurrency-based instruments into the existing financial and taxation system,”
Luo co-founded Tembusu in late 2013, and in February 2014 they launched the first Bitcoin ATM in Asia. “After more than half a year in the ATM business, we found that we wanted to address some of the main drawbacks inherent in Bitcoin and in doing so facilitate widespread adoption of the technology.
Tembusu Systems provides digital currency based technological solutions for corporations through its TRUST system, “we set out to integrate Proof-of-Identity, reputation and offline wallets into a new system” explains Luo. The system allows corporations to implement digital currency technology in a variety of ways, “It can be an asset tracking system, a new cryptocurrency, loyalty points, or even facilitate remittance. Regulation is to be a key facet for Tembusu.”
In February of this year, the Inland Revenue Authority of Singapore (IRAS) introduced new tax guidelines for businesses choosing to utilize the currency application of blockchain technology, “Businesses that choose to accept virtual currencies such as Bitcoins for their remuneration or revenue are subject to normal income tax rules.” states IRAS, “They will be taxed on the income derived from or received in Singapore. Tax deductions will be allowed, where permissible, under our tax laws.”
Businesses that buy or sell goods or services using digital currencies are required to record sales based on the market value of the digital currency at the time. Businesses that trade digital currencies will be taxed on the resulting profits, this includes miners and exchanges deemed to be trading.
Businesses that buy for long term investment will enjoy tax free capital gains on any profits made from the sale of digital currencies, as the IRAS applies no capital gains taxes in Singapore.
“Whether gains from disposal of virtual currencies are trading or capital gains depends on the facts and circumstances of each case. Factors such as purpose, frequency of transactions, and holding periods are considered when determining if such gains are taxable.”
— – IRAS
Luo advises, “I think that this sends a message that there is potentially a ‘mainstream’ role for cryptocurrencies, and it shows that the government has a deeper understanding of the true potential for the technology and a sense of the early stage it is in. It is very rational and well-informed.”
Other countries have approached cryptocurrency with determinedly different goals. Russia still seems troubled by the potentially anonymous nature of bitcoin, and regulation in the USA appears fractured and inconsistent. “Globally, you can see a polarisation of reactions towards bitcoin. Some governments have a positive but cautious attempt at mainstreaming it and are progressing in that direction. Other governments are progressively trying to shut it down,” says Luo.
“An outright ban on cryptocurrencies or on BTC is often reflective of a lack of knowledge about how the technology works, or else there are often other unspoken reasons for a ban. If you look at other countries, you will also see that there are differences in how cryptocurrencies are defined, let alone how they are regulated.”
— – Luo
Luo believes education is lacking in cryptocurrency. Many governments are yet to wrap their heads around the concept, while businesses and the public remain illinformed. “The landscape is still changing as we speak, so we really have a lot of catching up to do. The more people know, the fewer mistakes, scams, and risks we will be exposed to,” explains Luo
In addition to the need for further education Luo believes that there is a necessity for regulation over emerging markets and industries within the digital currency ecosystem. He explains that ground rules are necessary for the integration of this new technology, and its currency applications. “Bitcoin is widely adopted but it needs to evolve in order to progress. That’s part of what we are trying to do at Tembusu by putting the technology behind cryptocurrency into everyone’s hands, except we are making it more robust and more aligned to the needs of corporations and banks, the biggest issue of which is the Know Your Customer process,”
“Regulation will help to manage the risk involved for cryptocurrency transactions. Exchanges do have a duty to their clients to provide a level of service and security and this needs to be well defined so that there is confidence in the system,” says Luo
Over time, the Bitcoin Industry has witnessed vast monetary losses due to exchanges collapsing or disappearing. Recently, in neighbouring Hong Kong, the My Coin exchange is reported to have lost$386 million USD. “It is unthinkable that an exchange could disappear overnight or be subject to massive losses like we have seen” says Luo.
“The regulation should eventually be able to account for and be tailored to the varying risk profiles of each differing use case, rather than a blanket, across the board ruling. This will provide clarity to businesses such as Tembusu who are setting out to develop many other potential applications driven by cryptocurrency-based technologies, which may not necessarily have the usual risk profiles of existing financial technologies,”
— – Luo
The future of regulation globally is yet to be decided. “I think we need to separate the technology from the application to make more sense of the regulation. It will also be very interesting to see how this pans out for the innovation climate in the different countries,” says Luo