Cryptocurrencies: To control the Uncontrollable?
Partner | Tax & Legal – Corporate
Amidst the war in Ukraine, the use of cryptocurrencies has become a true test of strength in the debates of advantages in using cryptocurrencies over the traditional ‘money’ as they are decentralized and might be the only means of payments left. It is undeniable that cryptocurrencies have its place despite the controversy surrounding them. As for Thailand, it is a world leader in the proportion of internet users who own cryptocurrencies, rising to more than 2 in 10 according to the Digital 2022 Global Overview Report. Of course, Thai regulators recognize such trend and have been trying to put a measure on the adoption of cryptocurrencies in Thailand. Let’s take a look at key legal developments in Thailand.
The kick-start event of the regulations in Thailand comes from the fundraising of J-fin coin in 2018 which were sold out within a few days. In response to that, the royal emergency decree governing digital assets was enacted and becomes effective from 14 May 2018 onwards, mainly divided into regulating of (i) the offering of digital tokens, and (ii) digital assets operators, including Exchanges.
Since then, Thai regulators have been following up with the development of the industry and gradually issued sub-regulations in response to the action of players in digital assets network. Take the recent amendment on the regulation issued in 2021 as an example, the Securities and Exchange Commission (SEC) prohibits certain tokens not to be listed on licensed Exchanges, i.e. (i) meme tokens; (ii) fan tokens; (iii) NFTs; (iv) tokens issued by the exchange cannot be listed on its own exchange. This caused a demur from the industry since this prohibition may raise a lot of uncertainties and limit the growth of digital assets operators. For example, it’s unclear what is constituted as ‘meme token’ since some may simply be in the stage of development and they are not meaningless, or tokens issued by Exchanges has already been done and it creates uneven fields for newcomers. Not to mention, the rationale of not allowing NFTs to be listed is still puzzling for those involved. These prohibitions, as a result, may lead Thai Exchanges to be less competitive to foreign Exchanges in terms of product offerings.
To top it off, around late last year, the Revenue Department reminded relevant persons to report and pay any taxable income derived from cryptocurrencies based on the royal emergency decree issued in 2018. The Revenue Department is well aware that more clarifications are needed, e.g. how to calculate the capital gains from trading, or timing to be considered as having gains from farming or mining of cryptocurrencies. After receiving feedbacks from the industry, the manual clarifying these issues was issued in January 2022, also recently, the regulation was issued to allow the loss from trading on the approved exchanges to be deducted for individuals, and there will be a follow-up on related laws for further clarity, e.g. VAT may be exempt from trading on the approved Exchanges.
Further, in response to the rising cooperation among commercial industries and digital assets operators to apply cryptocurrencies as means of payments, the authorities have a major concern on the financial stability as there may be other units of accounts prevailing over Thai Baht. Consequently, the authorities plan to issue a regulation, effective from 1 April 2022 onwards, to prohibit digital assets operators not to support any use of digital assets as means of payment, which include the restrictions not to provide any systems in support of such activities.
Regulations on cryptocurrencies are still in the process of development and constantly adapt to the changes of digital assets industry. To support the growth of Thai digital assets operators to be competitive in the worldwide market, regulators may consider incentives and less restrictions to lift Thailand to be a hub of the business, given that we have the demand of investors and readiness of players in our country. It is always important to note the balances between business opportunities from the emerging industry of digital assets, and concerns to governmental control or investment risks in which authorities, digital assets operators and investors will help shape the tone and its movements.