IN 2017, the Philippines posted a 6.7-percent year-on-year GDP growth. This was the third-highest growth recorded among Asian countries, trailing only behind China and Vietnam. Remittances from overseas Filipino workers are seen as a resilient force driving the sustained or even increasing growth of the Philippine economy over the years. Still in 2017, about $31.3 billion in personal remittances were sent by Filipino migrant workers, which accounted for almost a hefty 10 percent of the Philippines’s GDP.
Wireless transfers of money have become relevant now more than ever, not just because of the overseas remittances, but also because of business transactions going digital. Different schemes have risen to accommodate the need for a faster, economical and convenient delivery of financial services, especially with parties across the seas and borders. The use of virtual currencies became more prevalent and provides a glimpse on the potential revolutionized delivery of financial services. A virtual currency (VC) is a type of digital currency stored in electronic wallets (e-wallets), and is generally transacted over the Internet. It is a medium of exchange within the community of users. It may be transferred to buy virtual items or real goods from online shops willing to receive the VC as payment.
VCs encompass cryptocurrencies such as Bitcoin. A cryptocurrency uses cryptography as a means of storing and transferring data. It renders data into an unintelligible form so that the intended receivers are the only ones to decrypt and process it. Cryptocurrency transactions are done via blockchain, which allows for carrying out transactions in a decentralized manner.
VCs may also be exchanged to actual cash (fiat money), and vice-versa, through people or companies that are part of its community of users. While VCs were created and are generally accepted by an online community of users, it is not backed by the government or any resources, and is not acceptable as legal tender.
Government regulatory bodies are aware of the benefits but are growing mindful of the risks. VCs have remarkably high volatility in prices, integrity and identity issues, information-technology risks, potential for unlawful use in money laundering and terrorist financing, and consumer protection and financial stability concerns.
This year, various government agencies are expected to release regulatory papers on virtual currencies. The Bangko Sentral ng Pilipinas issued several advisories and circulars, outlining the benefits and risks of investing in VCs. With BSP Circular 944 issued in 2017, the BSP established a formal regulatory framework for VC Exchanges. VC Exchanges are entities engaged in changing VCs into fiat currency and vice-versa. These entities are required to be registered with the BSP and set up adequate safeguards attendant to the risks in VCs.
The Securities and Exchange Commission has not issued any regulatory measure as of yet. However, the SEC Enforcement and Investor Protection Department recently published its position that virtual currencies fall within the definition of security and investment contract in the Securities Regulation Code, and so are under the regulatory jurisdiction of the SEC. This entails VCs and the parties transferring such to be subject to strict registration and regulatory requirements as other securities and investment contracts are. As of press time, the SEC Markets and Securities Regulation Department has issued draft rules on initial coin offerings to solicit comments from the investing public.
The Bureau of Internal Revenue so far has only issued a Revenue Memorandum Circular pertaining to tax implications of eCommerce and digital transactions. One must be mindful, however, that income is generally taxable. Alertness on future clarifications from the BIR regarding taxability of income generated from virtual currency transactions should be anticipated.
Jurisdictions like Japan, South Korea, Canada, Germany and the United States, among others, are regulating and taxing income from VCs. In the US, VCs are classified and taxed as property subject to capital gains tax in certain instances. Much opportunity is seen in the cryptocurrency tax return preparation demand and supply gap. While many entities have embraced the use of cryptocurrency, and consequently are required to pay taxes on their transactions, only a few tax preparers understand cryptocurrency taxation.
VCs are game-changing developments that may be an opportunity or a new challenge, but adaptation to virtual currencies, as any other disruptions in the past, will definitely harbor positive results amid some clouds of uncertainty.
This column accepts contributions from accountants, especially articles that are of interest to the accountancy profession, in particular, and to the business community, in general. These can be e-mailed to boa.secretariat.@gmail.com.
Joshua Tito Tangca is a BS in Accountancy graduate of the Technological Institute of the
Philippines Quezon City.