Taxing cryptocurrency trading — an uncharted course
The digital assets industry is up in arms over the Revenue Department’s plan to levy tax on capital gains or benefits derived from cryptocurrencies and other digital asset transactions.
With the two parties being at loggerheads, consultations have begun between tax officials and concerned parties to resolve the conflict.
The department has promised to conclude the matter only by the end of January even as a hot debate rages on whether the government should collect taxes on digital assets, or how such tax can be levied fairly.
In May 2018, the government issued the Emergency Decree on Digital Assets Business 2561, aiming to regulate digital assets businesses covering trading, exchanges, brokerages, traders, and other related businesses.
At the same time, the government amended the Revenue Code, adding income and gains derived from digital assets as assessable income, also subject to a 15 percent withholding tax. Non-residents are also covered by the withholding tax.
Implementation of tax collection, however, has not begun. Digital assets comprise cryptocurrencies and digital tokens, which have been increasingly gaining in popularity in recent years. According to tax officials, cryptocurrencies are defined as assets, not as cash.
Individual Thai investors traded cryptocurrencies worth over Bt1 trillion last year via digital asset exchanges in Thailand, according to a trade data report on the Securities and Exchange Commission’s website. The trading amount is huge for 605,000 Thai investor accounts out of nearly 2 million investor accounts as of December.
The top three trading coins were: Bitcoin, Ethereum, and Cardona, while Thailand-based coins are Bitkub Coin, JFIN, and SIX.
Low bank deposit rates combined with speculation may push investors seeking higher returns into the market despite warnings from the Bank of Thailand and other experts on the volatile nature of digital assets.
According to tax officials, those who engage in coin mining also will be subject to taxation on the sale of coins. Investment in computer hardware, software, building rent, and electricity bill will be counted as the cost of the operation under the calculation formula of taxable income. Digital assets received by anyone will be treated as his or her revenue.
Those who sell digital assets and make capital gains are subject to 15 percent withholding tax. They have to inform buyers of the investment cost for those assets.
Taxpayers have to include such capital gains as taxable income in their annual personal income tax returns and the 15 percent withholding tax paid would be taken into account in determining their final tax liability.
Capital gains tax would be levied on each transaction. However, losses incurred on other transactions will not count for tax exemption from the Revenue Department. The idea of taxing gains while ignoring losses has raised the question of fairness for the taxpayer.
Debate on fair treatment
Former finance minister Korn Chatikavanij has urged the Revenue Department to clarify several points before it starts collecting taxes.
He said an investor selling his cryptocurrency on a digital asset exchange does not know who is buying it, raising questions on the practicality of implementing withholding tax.
Some countries like Australia, the US, the UK, and Canada have imposed capital gains tax, but they also allow investors to adjust losses incurred in other transactions from their taxable income, said Korn who is also the leader of the Kla Party.
South Korea allows tax exemption on the first capital gains amount not exceeding 2.5 million won (around Bt70,000).
As the Revenue Department treats crypto tokens as goods, this means that crypto trading might be subject to value-added tax (VAT). So those who sell digital assets worth over Bt1.8 million a year may have to register for VAT with the Revenue Department, Korn argued.
Others are worried that investors could move to foreign exchanges where there is no capital gains tax, such as Singapore, Malaysia, and Hong Kong.
Athipath Muthitacharoen, associate professor at Chulalongkorn University’s Faculty of Economics, however, supports a tax on digital assets. “The revenue department has to implement the tax law. The current debate is focused on the wrong point,” he said.
The law authorizes tax officials to collect tax on profit from a transaction, but it does not offer tax relief for losses in other transactions. So, if the government wants to make the law reasonable and fair to taxpayers, it has to propose to Parliament to amend it, he suggested.
“As a short-term solution, the government could exempt crypto trading from tax, but it would be equal to sweeping the problems under the carpet,” he warned.
Lack of tax reform
A milestone in tax reform happened in 1992 when Thailand introduced the VAT.
Critics have blamed successive Thai governments for fully collecting taxes from wage earners, but getting proportionally less from the wealth of financial investors and millionaires. An inheritance tax, as well as land and property taxes, have been introduced in recent years, but the tax rates are too low to make any significant socio-economic change.
The government is under high pressure to increase sources of revenue to finance persistent budget deficits. Many experts believe the current tax system has contributed towards widening inequality between the rich and the poor.
By Thai PBS World’s Business Desk