The government is right to proceed carefully with digital currencies, but excessive tax disincentives could be ruinous
The Finance Ministry appears to have adopted a highly conservative approach on a new form of fund mobilisation in the digital age as it prepares to impose two taxes totalling 22 percentage points on Initial Coin Offerings (ICOs). The Revenue Code has been amended to cover digital assets, including tokens used in the ICO process, so that all transactions will be subject to the current 7 per cent value-added tax (VAT). In addition, the Revenue Department will levy a 15 per cent withholding income tax on earnings from ICOs.
The message is clear. The Finance Ministry does not want to encourage this kind of financial activity, but rather prefers to support the traditional securities industry as far as fund mobilisation is concerned.
All parties involved in ICOs, as well as exchanges for digital assets, are required to be registered with the financial authorities within six months of the new regulations becoming effective. Exchange representatives will be tasked with collecting the withholding tax on earnings for the Revenue Department.
Jmart, a listed Thai company, recently became the first to issue digital tokens. They were worth a combined Bt660 million and were all purchased by investors, prompting authorities to speed up the issuance of rules to regulate the new form of fund mobilisation. Jmart said it would use the fund to invest in a digital lending platform and would comply with new regulations issued by authorities.
The Finance Ministry seems worried that there will be a large number of firms, listed or unlisted, turning to ICOs as a new form of fund mobilisation. The ministry is also concerned about the risks associated with ICOs, especially among small-scale and ill-informed investors, as well as the potential use of digital assets as a means of money-laundering and other illegal activities.
It’s already been decided that the Securities and Exchange Commission (SEC) will be chiefly responsible for regulating ICOs covering both utility tokens and securities, while those acting as underwriters, dealers as well as exchanges are required to apply for licences.
Digital assets have become controversial since the roller-coaster price swings of bitcoins and other digital units, but what’s more important is the blockchain technology that underlies these digital assets. Blockchain, a distributed and decentralised ledger system, holds tremendous potential for Thailand and other countries to go fully digital in coming years, because it will likely evolve in a series of stages to transform the analogue economy and society itself.
According to Futurethinkers.org, the blockchain will disrupt at least 19 industries around the globe. It will make businesses, government and other activities more decentralised, transparent, democratic and efficient, the website says. Among the sectors that will benefit from blockchain are banking and payments; supply chain management; research, consulting, forecasting; networking and the Internet of Things; insurance; private transport and ride-sharing; online data storage; voting; government; healthcare; energy management; online music; retail; and real estate.
Therefore, it is imperative for the government to strike a well-balanced policy on new technology, especially blockchain, which promises to make many aspects of society, business and government better.
Resorting to an excessive tax disincentive for ICOs, for which blockchain is the underlying technology – albeit with the intention of preventing its potentially adverse consequences on ill-informed small-scale investors or preventing money-laundering and other illegal activities – would be detrimental to the country in the long run.