Singapore Budget 2020 measures needed to boost adoption of blockchain technology

Written by Michael Velten, Deloitte Singapore Financial Services Tax Partner and Matthew Lovatt, Deloitte Singapore Financial Services Tax Director. The above are their personal views and may not represent the views of the firm.

As published in Singapore Business Review on 12 February 2020.

Blockchain has been one of the most talked about technologies in recent years. Though blockchain has not reached its full potential, respondents to Deloitte’s 2019 global blockchain survey reported a shift in focus from cryptocurrency applications towards other applications.

Some of the greatest use cases of distributed ledger technology (DLT)—of which blockchain is only one type—are in the financial services (FS) sector, as DLT can be used to automate and securely settle complex transactions without trust, which has traditionally only vested in regulated financial institutions.

As a leading global financial centre, Singapore has been at the centre of DLT developments in FS within Asia and more widely. As we approach Budget 2020, this article considers tax measures that could further enhance Singapore's position in the FS and fintech ecosystems.

Recent developments

DLT was first proposed in 2008 as the basis for developing a decentralised financial system. However, subsequent development of functions and additional infrastructure built on base-layer DLT architecture facilitates a much greater variety of applications.

Much of the initial development of DLT occurred in the context of cryptocurrencies, and by start-ups rather than existing financial institutions (whose stock in trade has been fiat currency—the direct competitor to cryptocurrencies).

Unencumbered by existing operating models and legacy systems concerns, some small and medium-sized enterprises engaged in DLT development have moved away from fintech proper into the realm of FS, leading to the emergence of challenger operating models across FS subsectors.

To date, DLT has made remarkable impact in the FS sector, including the creation of new asset classes (e.g. cryptocurrencies and utility tokens), disintermediation and greater automation of supply chains (e.g. decentralised finance) and optimisation of real-world activities (e.g. in trade financing).

Whilst the potential of DLT is exciting, how can FS stakeholders in Singapore benefit from the adoption of DLT? The upcoming Budget 2020 can help to address some of these opportunities for Singapore.

Potential income tax measures

The MAS presently offers grants relating to fintech and innovation, and certain direct tax incentives are also available to encourage FS activity, including the Financial Sector Incentives (FSI) and tax exemption of qualifying income of Singapore managed investment funds (the Funds Exemptions). Whilst existing grants frameworks may facilitate development of challenger operating models, modification of direct tax incentives could stimulate activity vis-à-vis new asset classes.

The FSI provide incentivised income tax rates to income derived by approved persons from specified activities pertaining to prescribed asset classes. Such asset classes often include derivatives (which may capture security tokens), but they do not currently include income derived from (other types of) DLT-based assets. Consequently, the existing FSI likely currently applies to a very limited number of DLT- and/or cryptocurrency-related investment activities. Similarly, the Funds Exemptions—which also apply only with respect to prescribed assets—do not provide for exemption of qualifying funds' income derived from DLT-based assets.

Internationally mobile stakeholders are increasingly seeking a suitable location from which to engage in investment business and/or fund management activities in respect of top market capitalisation DLT-based assets; and, presently, the conclusion typically reached is that activities should be located outside Singapore because of inefficiencies that arise from the non application of the existing incentives to DLT-based assets and/or related activities.

Updating what comprises qualifying income for the purposes of both the FSI and Funds Exemptions to capture income derived from tokenised and DLT based assets could add to the breadth of the country's FS sector and would also enhance the liquidity of the new asset classes in a way that is likely to produce other positive economic spin-off benefits. In principle, related risks could be managed through existing regulatory frameworks.

Potential GST measures

A source of consternation amongst DLT stakeholders has been Singapore's position of treating supplies of tokens as supplies of services, with supplies in exchange for goods or services thus triggering a need to account for Goods and Services Tax (GST) as a barter transaction. Such treatment complicated value transfers and dematerialisation of securities outside of listed environments, but exemption for supplies of Digital Payment Tokens (defined in conformity with the new Payment Service Act) effective from 28 January 2020 helps address such concerns; as does IRAS's confirmation that exemption provisions applicable to derivatives may apply to transfers of security tokens. Furthermore, IRAS's recent publication of its willingness to extend the GST treatment of vouchers to utility tokens is also positive.

Other indirect tax concerns amongst DLT stakeholders include differing treatments (of potentially infinite varieties) of tokens, thereby placing exchanges and over-the-counter (OTC) dealers under significant administrative burdens to determine the extent to which they may recover input tax. Another notable concern is the lack of an interrelationship between the statutory definition of Digital Payment Token and IRAS's definition of utility token for the purposes of applying the voucher rules, meaning that certain tokens may fall between those two sets of rules and so by default continue to give rise to barter transactions.

To address the operational problems such issues cause, the GST treatment of tokens could be streamlined by exempting supplies of all tokens not subject to the voucher rules (i.e. tokens principally designed to be redeemed by the issuer or a related party for a related supply of goods or services). In addition, input tax recovery could be simplified by enabling stakeholders who make exempt supplies of tokens to recover tax with reference to a fixed recovery rate—a method already made available to banks. Such change would significantly streamline administrative burdens for stakeholders dealing in tokens, particularly exchanges and OTC dealers.

Potential stamp duty measures

A number of tokenised asset trading platforms have been developed in Singapore to facilitate trading of interests in a wide variety of assets, much like the SGX facilitates the transfer of listed public companies' shares.

Regarding dematerialised shares specifically, an exemption currently exists which excludes transfers executed on SGX from the charge to stamp duty. However, as that exemption has a limited scope, it would not apply to transfers of tokenised shares on other locally-developed platforms. To encourage the growth of Singapore's private markets, extending the scope of the stamp duty exemption to designated private markets could be considered.


Singapore has built a strong and conducive business environment to support the pursuit of innovative business models that leverage DLT, including in the FS sector. Additional tax measures to support such growth could further enhance Singapore's ability to attract incremental economic activity in the FS sector, which few other countries are presently capable of realising.

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