Can Cryptocurrencies be Subjected to Taxation?

Aside from the general rules applicable, there are specific tax provisions applicable to crypto transactions:

• Capital Gains Tax (CGT) — Since the value of cryptocurrency is highly volatile, a taxpayer may realize a gain when crypto assets are sold or disposed of at a price higher than their original acquisition cost. Such gains may be subject to capital gains tax, locally analyzed at up to 15%, when the cryptocurrency is treated as a capital asset, similar to stocks or property. For illustrative example, if a person purchased Bitcoin for ₱100,000 and later sold it for ₱150,000, the ₱50,000 net gain may be subject to capital gains taxation upon conversion, depending on its classification and other prevailing tax rules.

• Income Tax — Cryptocurrency received as compensation for rendered services, as well as rewards from mining, staking, airdrops, or similar activities, is generally treated as ordinary income and taxed under the regular income tax table. In line with the Revenue Memorandum Circular No. 97-2021, income is taxable regardless of the form of payment, whether in cash, in kind, or in digital assets such as cryptocurrency. The fair market value (FMV) at the time of receipt shall be the basis for taxation. Airdrops, in particular, are considered ordinary income upon receipt, and any subsequent gain upon conversion may be subject to capital gains tax.

• Business Tax – Individuals or entities engaged in cryptocurrency trading, mining, or related activities must register with the Bureau of Internal Revenue (BIR) and pay the appropriate business taxes. 

• Value-Added Tax — When cryptocurrency is used as payment for goods or services in the ordinary course of business, the transaction may be subject to the imposition of 12% VAT, based on the FMV of the crypto at the time of payment. However, VAT applicability depends on whether the transaction falls within the taxpayer’s regular business operations or merely involves the disposal of an investment asset.

Another essential matter concerns Initial Coin Offerings, a fundraising mechanism used by cryptocurrencies and other blockchain projects to raise capital by selling newly created digital assets to investors. Proceeds from ICOs do not qualify for the tax-free treatment typically accorded capital-raising activities. As such, they may be subject to ordinary income tax, depending on the nature and structure of the transaction.

It is likewise essential to emphasize that, consistent with the principle against double taxation, the same income or gain should not be subjected to multiple forms of income taxation arising from the same taxable event. However, this does not preclude the imposition of different types of taxes, such as income and business taxes, when each is imposed on a distinct aspect of the transaction.

These are only some of the applicable tax laws currently. Further, the BIR has not yet issued clear guidance on crypto transactions.