Minister of Finance, Lawrence Wong, announced in Parliament on March 11 earlier this year that Non-Fungible Tokens (NFTs) trading would be charged income tax. Notably, Singapore has no tax framework for capital gains. Hence, a chargeable tax on capital gains in crypto assets and stocks is applied.
Income taxes in Singapore
Singapore’s tax framework has always lacked the presence of capital gains taxes, resulting in the nation attracting wealthy individuals looking into investment prospects. Its income tax also ranks one of the lowest in Asia, with high-income individuals only having to contribute the maximum income tax of 22 per cent, with countries such as Japan having income tax of as high as 55.97 per cent. Combined with the current GST at 7 per cent, the balanced tax combo of income and consumption lowers the revenue intake vulnerability to drastic changes in the market. This, as a result, strengthens the nation’s fiscal position despite the volatility of the modern world market.
Possible implications of NFTs-related income tax
There are several potential implications that NFTs-related income tax comes with:
- NFTs as an asset class: NFTs represent all sorts of digital assets, such as real estate and digital artworks. It can also represent various other assets like concert tickets, collectables, domain names, and avatars. The mainstream media still centres NFTs around a significant amount of invested money into the digital space, despite many of the assets not being extensively known mainstream. As such, it may discourage potential users who might be interested in NFTs but do not want to go through the trouble of having to adhere to NFT regulations.
- Defence against financial crimes: The income tax framework for crypto and digital assets has been evolving. Business companies dealing with cryptocurrency investments are expected to adhere to healthy safety measures. This NFT treatment could serve as additional layers of defence against potential financial crimes, such as money laundering and compromising of countries’ political, economic, and strategic interests. It means that offenders will find it harder to convert their crypto earnings into actual money as they are forced to declare any earnings.
- Probability of hidden funds: Crypto is still utilised as a way to store funds. This, as a result, allows individuals to use decentralised wallets to store away suspicious assets that are not linked to their identity. Many law offenders’ methods have become significantly sophisticated in laundering money using NFTs. Even with law enforcement on illicit digital activities, it is still a considerable challenge for regulatory systems to catch due to decentralised exchanges and privacy wallets.
- Broadening of NFTs regulations
- Singapore’s authorities have ensured that well-planned measures have been put in place with the entrance of crypto industries into the nation’s market. MAS has also stated that they will organise a seminar to educate individuals and businesses on Singapore’s stand in regulating cryptos and NFTs.
- NFTs are currently among the most well-known blockchain technologies in the modern world market. Still, they come with substantial valuation challenges, and many would question, “What are NFTs’ value on a business balance sheet?” Should you require professional advice on blockchain technology for your business, an accounting firm like Ackenting Group can help to shed some light on NFT taxation. Contact us at https://ag-singapore.com/ or at +65 9383 2464 to find out more!