Thailand takes lead in crypto

This article first appeared in The Edge Financial Daily, on July 2, 2018.
-A +A

SECURITIES, or not securities. That is the crypto question.

Except in Thailand.

While regulators around the world have grappled with the issue of what category digital currencies and assets fall into, Thailand has skipped the debate altogether.

Instead, using an emergency decree that came into effect earlier this year, authorities wrote an entirely new law.

The result is the Digital Asset Business Decree, which defines both cryptocurrencies (a medium of exchanging goods) and digital tokens (rights to participate in an investment or to receive specific goods). The government also amended its tax law, so it can extract some revenue from the budding industry.

Like almost everything in the crypto world, the new move copped criticism from all sides. True believers are aghast that regulators even dare, well, regulate. More conservative elements see downsides in even giving these upstarts any credibility.

Thailand’s Securities and Exchange Commission (SEC) is trying to strike a balance between those who view cryptocurrencies as evil and those who use them for gambling, Archari Suppiroj, the director of the commission’s fintech department, said at last month’s TechSauce conference in Bangkok. If regulators make things too strict, she argues, people will go overseas and Thailand’s ability to offer any investor protection will evaporate. That’s a sentiment regulators worldwide share.

As I have argued before, regulation brings legitimacy. And legitimacy brings, hopefully, widespread adoption (see chart).

Thailand’s regulations lay out rules for businesses that want to operate as an exchange, a broker or a dealer. They also formalise a process for initial coin offerings (ICOs) that’s similar to the system for issuing debt or equity. Shock horror, you actually require a business plan, including audited financial statements.

One of the most interesting aspects of Thailand’s new rules is that all ICOs and trades must be paired with one of seven specified cryptocurrencies. The SEC hasn’t formally named them, but Archari confirmed earlier comments to the media that the chosen list comprises Bitcoin, Ethereum, Bitcoin Cash, Ethereum Classic, Litecoin, Ripple and Stellar. They were selected, she said, because of their liquidity and convertibility to fiat (Thai baht).

Where the regulations fall down, however, is in taxation.

A 15% withholding tax is taken on profits, but that can be credited against an individual’s full-year income tax bill and so is merely an inconvenience. Under the current tax code, trading of digital assets attracts a 7% value-added tax (VAT). That’s for every trade, and thus a huge drag on the industry.

It seems this is a carry-over from the old tax rules, with law firm Baker McKenzie telling clients it expects an update on the code to eliminate VAT at least for individuals and trades through regulated exchanges.

Given that Thailand is competing against dozens of other places that aim to be crypto hubs, it’s unlikely these new laws will see it overtake Japan, South Korea or Taiwan. But at least with leadership, innovation and clear rules, the country is in with a fighting chance. — Bloomberg