Thailand’s Government Battle With Crypto Enters Decisive Phase
4 months ago kakp2 Comments Off on Thailand’s Government Battle With Crypto Enters Decisive Phase
Last week Thailand’s government issued drafts of two laws regarding cryptocurrency and ICO legislation. There is a certain cause for optimism as long as Thai lawmakers intend not to ban, but to regulate the technology. Nevertheless, any fears remain legitimate after Veerathai Santiprabhob, governor of the Central Bank of Thailand asked all banks in the country to stay away from cryptocurrency in February.
Now that it has become clear that the local government is planning to introduce a regulatory framework for the so-called ‘Digital Assets,’ we oversee the recent history of Thailand government’s relationship with crypto.
“Money laundering, tax avoidance and crime:” What does Thailand’s Government have against crypto?
There are drafts of two laws that were approved in principle by the cabinet on March 13: one to regulate digital-asset-related transactions and another to essentially introduce tax levies on digital assets. The Finance Ministry of Thailand defines ‘digital assets’ as “cryptocurrencies, digital tokens and other assets in the form of electronic data.”
The main regulatory body is Securities and Exchange Commission (SEC), which, according to Bangkok Post, “has received endorsement from financial experts.” One of the supporters, the chairman of The Thai Fintech Association (TFA) and a former finance minister Korn Chatikavanij argued that:
“Digital assets are new for everyone, and no one knows everything [about them], so all parties should be open-minded, learn about them and have proper rules and regulations.”
Focusing on the latter, Deputy Prime Minister Wissanu Krea-ngam explained to the cabinet that the government needed to issue new laws to regulate cryptocurrencies and ICOs because the latter could be used in the context of “money laundering, tax avoidance and crime,” which, in turn, could hurt potential investors and the economy as a whole.
In February Сentral Bank of Thailand has banned all banks in the country from investing and trading in crypto, as well as participating in and creating platforms for such trading. However, the decision applies specifically to banks, not to existing exchanges or other services, which are still allowed to operate freely in Thailand. Local banks had also been asked not to advise customers on crypto investment or trading, and to ban clients from using credit cards for crypto purchases.
In response to the circular, major Thai banks started to shut down their crypto trade accounts. The first financial institution to do that was Bangkok Bank, which terminated its accounts on TDAX, a popular privately-owned Thai cryptocurrency exchange. Then the state-owned Krungthai Bank also stopped trading via TDAX. By the end of February, TDAX still had bank accounts with two other financial institutions: Kasikornbank (Kbank) and Siam Commercial Bank (SCB), however their status with the crypto exchange platform is unclear at this point.
Law 1: Deanonymization
The first law is also known as the Act on Digital Asset Businesses. It requires that all crypto transactions, including those within digital asset exchanges, brokers and dealers, will have to get registration from the relevant authorities once the draft gets final approval from the cabinet.
In other words, those businesses will have to share transaction information as well as the names of buyers and sellers with the Anti-Money Laundering Office and, potentially, Securities and Exchange Commission (SEC).The document also imposes penalties and remedies for violations of that know-your-customer compliance, although their rate is unclear at this point.
Law 2: Tax Levies
The second law is basically the revision of the country’s Revenue Code to introduce taxation on digital assets. Essentially, the document will let the tax-collection agency to impose a capital gains tax on investment gains and benefits from crypto. The cabinet will consider the exact rates of the capital gains tax this week, and the ceiling is expected to be set at 15 percent.
Local media points out that there is a law that allows the Revenue Department to tax income derived from various activities, including cryptocurrency investments, however, the tax-collecting agency wants to set clear guidelines first.
Arnat Leemakdej, professor at Thammasat Business School, argued that “those who trade cryptocurrencies could be taxed and such taxation has already started in the US” adding that traders could start trading crypto overseas, but in that case, they could be subject to money laundering liability once they move those gains back into Thailand.
That, in turn, would motivate them to keep the profit abroad. In Leemakdej’s opinion, this tax tries to “shoot two birds with one stone” by seeking a way to generate benefit for the state and prevent crypto speculation at the same time.
Among the news about potential regulatory actions from the government, ICOs began growing in popularity in Thailand. The number of local companies racing to hold their initial coin offerings before regulations would hit was growing steadily.
In February, J Ventures, a subsidiary of Jay Mart Plc which is listed on the Stock Exchange of Thailand (SET), managed to become the first company in Thailand to launch a successful ICO. The company raised around 660 million baht ($21 mln) by selling out its 100 mln JFin digital tokens within 55 hours. Now that all ICO-related processes have been put on hold due to the upcoming introduction regulatory framework, the coin’s future has become unclear. Thai Rath has reported that “Thai private companies that have already issued an ICO must comply with the law within six months.”
Adisak Sukumvitaya, chief executive at Jay Mart Plc, stated that the government had generated a certain level of uncertainty by not allowing its citizens to know the full picture regarding government regulations or intentions:
“Personally, I think the regulator should announce a clear picture for the cryptocurrency regulatory[framework] at one time rather than gradually[unveil] the framework in bits and pieces.”
Another Thai company with plans for an ICO launch, a fintech startup Stockradars, was late to the race. According to the website of its social trading platform, there was a pre-sale ICO held on March 8, however, the mass sale was planned on April 22, which falls under the new regulations.
TDAX has shut down its ICO operations as well, stating that “due to uncertain regulation that may be announced soon from SEC, we have suspended the ICO portal operations for the moment until we get more clarification on the situation.”
It is not uncommon when the state tries to ban crypto activities due to their decentralized nature. However some governments intend to benefit from digital assets, not to forbid them. Apart from Thailand, a stark example is the Indian government, which have been introducing a number of regulations to local crypto deals with a regulatory framework being in the works as well. For instance, in February the Indian tax authority sent notices to 100,000 crypto traders in the country asking them to pay taxes.
The local industry seems to comply with the government regulations. A group called The Blockchain and Cryptocurrency Committee (BACC), which includes seven cryptocurrency exchanges like Unocoin, Zebpay and Coinsecure, is planning to create a database of crypto users and transactions in response to the government’s action. User account data would be recorded using either an Aadhaar ID or a Permanent Account Number.
According to The Times of India, as regulations tighten in the country, crypto enthusiasts turned to a network of friends and family members for buying and selling digital coins. L.R. Dinesh, a local Bitcoin aficionado who uses the cryptocurrency to buy things from overseas, told the publication: “For the online tech community, there are some who receive Bitcoins as payment for gadget and video game reviews. But for regular purchases, one has to get a relative or friend with an overseas account to send over Bitcoins.”