Tax breaks for security tokens in Thailand

While there are doubts in many countries about cryptocurrencies being considered securities, and actual security tokens, Thailand, by contrast, seems to be going against the grain.

In fact, as Reuters reports, the Thai government has even decided to waive corporate income tax and value-added tax (VAT) for companies that issue security tokens.

Security tokens and cryptocurrencies

However, a distinction must be made in order to fully understand what is going on.

In fact, by security tokens we do not mean cryptocurrencies, but those tokens that are already born and put on the market as securities, that is, on the basis of investment contracts approved by supervisory authorities.

In the specific case of the Thai government’s decision, these are precisely actual security tokens, and not cryptocurrencies or tokens that could be considered securities.

The difference lies precisely in the fact that the real security tokens have obtained the approval of the supervisory authorities to be put on the market, thus resulting in all respects in registered securities, such as equities.

However, the discussion is completely different for those cryptocurrencies or tokens that are considered unregistered securities, i.e., investment contracts for all intents and purposes but without approval to be put on the market.

Actual security tokens are very similar to stocks, so much so that they are explicitly proposed as a form of investment that promises gains.

In contrast, cryptocurrencies and regular tokens (payment tokens or utility tokens) should not be proposed as financial investment products because they should not promise financial returns.

The usefulness of real security tokens

Vice Chair of the Women’s Caucus of the Council of Asian Liberals and Democrats (CALD) and member of the Executive Committee of the Democratic Party of Thailand, Rachada Dhnadirek, said the government’s measure is intended to promote access for local companies to alternative ways of raising capital through precisely the issuance of investment tokens.

Thus, actual security tokens are, like stocks, financial instruments that allow those who issue them to raise capital in accordance with the law, and those who buy them to hope to receive a financial return in return that is also in accordance with the law.

It is enough to mention that the Thai government itself has estimated that over the next two years there could be public offerings of new security tokens totaling 128 billion baht, or more than $3.7 billion. To facilitate this, the government estimates that it will lose 35 billion baht in tax revenue, or about $1 billion.

But why is it willing to go to such lengths?

The thing is that issuing and placing security tokens on the market is much easier than issuing and placing shares, so it should provide companies with easier access to capital.

In addition, stocks are in fact shares owned by the companies that issue them, while security tokens are instead more like bonds that do not give the right, for example, to voting power at shareholder meetings or on the board of directors.

Cryptocurrencies in Thailand

Furthermore, cryptocurrencies in Thailand have gained popularity in recent years after the local SEC began regulating digital assets.

In fact, the government had already also loosened taxation against crypto trading last year, with the specific aim of promoting the development of this sector in the country.

Even though the country’s central bank has banned the use of cryptocurrencies as a means of payment in the country, out of fear that this could have a negative impact on its financial stability and economy, Thailand seems to be really serious about trying to take advantage of these new technologies to open up new business opportunities.

It is worth noting that during 2021 and 2022 the Thai currency, the bath (THB), had lost 22% of its value against the US dollar, but in recent times it has partly recovered this decline.

However, it is not a currency with exchange rate problems, so much so that, for example, its current value in US dollars is higher than in 2016, although lower than in 2013.

At this point, it is not surprising that the government is focusing on how to help its citizens and especially its companies take advantage of these new technologies, without focusing exclusively on speculation in the financial markets.