Active cryptocurrency traders not spared from LHDN

Tax collector says income generated through digital platforms will be treated similar to income generated through conventional biz

by AFIQ AZIZ / pic by TMR FILE

CRYPTOCURRENCY investors, who trade their assets at the Digital Asset Exchange (DAX), will be required to declare their gains to the Inland Revenue Board (LHDN) via their annual income tax declaration.

However, this will only apply to those who are actively trading the digital assets, LHDN told The Malaysian Reserve (TMR) in an email reply last week.

According to the tax collector, income generated through digital platforms will be treated similar to income generated through conventional businesses.

Citing Section 3 of the Income Tax Act 1967, LHDN said the provision includes incomes accrued in, or derived, or accepted in Malaysia from overseas to be taxable.

But, LHDN said the act does not specifically provide details of how the profits or losses arising from cryptocurrencies transactions will be treated.

“Therefore, to determine whether the profit from the activity is taxable or not, it is necessary for us to look at each and every case in depth to determine whether there is a pattern of trade, or badges of trade,” it said.

“If the transaction is more of a capital gain, passive, or as done occasionally, unplanned or unsystematic, then the profit from such sale and purchase is a tax-free income.

“On the other hand, for those who are involved in or using this cryptocurrency actively, systematically and repeatedly where the patterns of badges of trade exist, then the party is considered to have conducted a transaction or profession.

“The profits generated from such transactions are subject to income tax,” said LHDN communication director (CEO Office) Ranjeet Kaur.

Individuals under this category must submit Form B (individuals conducting business) before or on June 30 each year.

“They can also take into account all expenses related to conducted transactions as deductions in calculating their net profits,” she told TMR.

According to Ranjeet, the digital currencies — for the purpose of reporting and submission of tax — should be converted to the value of ringgit.

She explained that based on the transaction, the values that can be used in the declaration form is the “market value of the goods and services involved”.

In the case of no market value incurred, LHDN said investors shall refer to the value specified by DAX operators registered under the Securities Commission Malaysia (SC).

Last Wednesday, TMR reported that Bitcoin traders and holders, who enjoyed as much as 300% gains in 2020 alone, may not be taxable.

The price of the digital assets have surged from only US$7,190 (RM29,010) in January last year to a high of US$20,000 on Dec 17, 2020. The leading virtual currency saw its price pass US$34,000 on Sunday for the first time.

In Malaysia, it is estimated that there are more 200,000 accounts registered with the three DAX operators licensed by the SC in 2018.

The platforms are operated by Luno Malaysia Sdn Bhd, SINEGY Technologies (M) Sdn Bhd and Tokenize Technology (M) Sdn Bhd. All activities of the recognised market operators are regulated by the SC.

Luno Malaysia — which claimed to represent 90% of the regulated market — has reportedly processed over RM800 million of transactions last year as its customers increased by more than 30%.

While taxing such profits may add a significant value to government coffers, Malaysian Association of Tax Accountants president Datuk Abd Aziz Abu Bakar suggested LHDN not to rush into taxing the new asset class.

“If we rush into it, it will halt the growth of the digital economy.

“Perhaps we shall wait and refer to other countries so that the formation of such tax will be more sensible,” he told TMR.

Abd Aziz said the virtual asset can be taxed via capital gain tax.

However, Malaysia only has such provision for the disposal of real property or on the sale of shares in a real property company.

To allow LHDN to collect revenues generated by cryptocurrencies, the tax regulator had issued guidelines on Taxation of E-commerce Transactions on May 13, 2019, which include digital currency under its scope of charge.

Meanwhile, Ranjeet advised taxpayers and investors involved in the digital currency activities, including mining, to keep their transaction records and relevant documents for seven years for audit purposes.

Read our earlier report


Bitcoin investors to escape ‘gain tax’