Malaysia is ambivalent about crypto

Written by Kapronasia || March 16 2022

Could Malaysia become a crypto hub in Asia? A recent CoinDesk article made that case, pointing out that some of the necessary ingredients are already there, such as a common law system and institutional use of English. Further, Malaysia's crypto ownership rate of 19.9% is above the global average of 15.5%, according to Finder’s latest Cryptocurrency Adoption Index.

Unsurprisingly, Bitcoin is the most popular cryptocurrency with 34.9% of Malaysian crypto owners holding it, followed by Ripple at 23.1% and Ethereum at 20.5%.

For what it’s worth, the survey found that 61% of Malaysian adults think that cryptocurrency is a good investment. That is considerably higher than Singapore (37%), Hong Kong (42%) and the global average of 43%.

Yet for digital assets to truly thrive in Malaysia, regulators must be more proactive. As crypto inches closer to the mainstream of financial services, comprehensive regulation is more important than ever, and Malaysia does not have it.

One example of where more lucid and consistent regulation is needed is in the area of taxes. Currently, Malaysia does not tax crypto profits in a consistent manner. In theory those who trade relatively infrequently are not subject to income tax, while "active traders" may be. 

“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,” Ranjeet Kaur, communication director of Malyasia's Inland Revenue Board, said in January 2021. 

It would be better to clearly distinguish between those subject to tax and those who are not, either based on the category of investor (such as individual/institutional), the amount earned from crypto investments, or both. 

In early March, Malaysia’s deputy finance minister Yamani Hafez Musa seemed to rule out the use of cryptocurrencies as a unit of payment, noting their volatility due to exposure to “speculative investments.” He added that cryptocurrencies “do not exhibit characteristics of money.”

Being squeamish about recognizing crypto as legal tender is not a dealbreaker. The only country to allow cryptocurrency to be used by consumers in all transactions is El Salvador, though Japan has permitted it in many instances since 2017.

While cryptocurrencies are not recognized as legal tender in Malaysia, they still have many uses within the context of being an asset class. Malaysia’s Securities Commission has defined crypto assets as securities under its law and that regulator oversees crypto trading activities in the country.

With that in mind, Binance plans to return to Malaysia with a strategic stake in the country’s regulated digital asset trading platfrom MX Global, which is one of the four “recognized market operators” licensed by the Securities Commission. Binance previously restricted its services in Malaysia last summer following an order from the regulator, which cited the crypto exchange’s non-compliance with regulations.

Separately, Malaysia has been struggling to control illegal Bitcoin mining. Though the mining itself is not prohibited, some miners pilfer electricity. According to Bloomberg, Malaysia recorded 7,209 cases of electricity theft involving illegal Bitcoin mining operators in 2021, compared to just 610 in 2018.

To combat electricity theft, Tenaga Nasional Bhd. has proposed a special tariff for Bitcoin mining operators in a move to fight electricity theft.  It has also suggested that the Energy Commission encourage Bitcoin mining operators to apply for legal electricity supply.