The Inland Revenue Board (LHDN) has clarified that cryptocurrency investors who actively trade their assets at the digital asset exchange (DAX) are required to declare their gains for their annual income tax.
According to a report by The Malaysian Reserve, LHDN said that it will treat income earned through digital platforms similarly to income generated through conventional businesses. It also highlighted Section 3 of the Income Tax Act 1967 to justify why active cryptocurrency traders need to declare their DAX earnings in their income tax as well. The provision clarified that tax will be charged upon the incomes that are accrued in or derived from Malaysia, or received in Malaysia from abroad.
That said, LHDN admitted that the act does not provide specific details on how the earnings from cryptocurrency transactions should be treated. As such, the tax regulator must approach every situation on a case-to-case basis to determine if the profit obtained is taxable. This depends on whether the transactions have a pattern of trade, or badges of trade.
“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 the communication director (CEO Office) of LHDN, Ranjeet Kaur.
Ranjeet further explained that cryptocurrency traders who are required to declare their earnings will need to do so by submitting Form B (for individuals with business income). “They can also take into account all expenses related to conducted transactions as deductions in calculating their net profits,” she added.
In declaring these earnings for their annual tax, these investors will also need to convert the digital currencies to the value of ringgit. Additionally, they should use the “market value of the goods and services involved” as the values to be declared in their income tax form. If there is no market value incurred, then the investors will need to refer to the value specified by DAX operators registered under the Securities Commission Malaysia (SC).
For context, the SC currently has three registered DAX operators, namely Luno Malaysia, SINEGY Technologies, and Tokenize Technology. It is estimated that there are more than 200,000 accounts registered with these operators, with Luno commanding over 90% of the local regulated DAX market share.
It should be noted as well that LHDN had previously issued updated guidelines on the Taxation of E-Commerce Transactions, which include digital currency as part of its scope of charge as well. Effectively, these guidelines allow the tax regulator to collect revenues generated by cryptocurrencies as well.
(Source: The Malaysian Reserve)