Cryptocurrencies, while gaining global popularity, have yet to be recognized as legal tender in Malaysia. Under the Central Bank of Malaysia Act, only the ringgit holds this status, leaving cryptocurrencies excluded. However, they are not entirely disregarded. The classification of digital currencies as securities under the Capital Markets and Services Order has provided them with a defined place within Malaysia’s financial regulatory framework.
Calls for Progress and Government Discussions
Despite the current legal limitations, there have been growing calls for Malaysia to adopt a more progressive approach towards cryptocurrencies. Notably, in March 2022, Zahidi Zainul Abidin, deputy minister of the Communications and Multimedia Ministry, suggested that Malaysia consider recognizing bitcoin and other cryptocurrencies as legal tender. Zahidi’s statement in Parliament reflected growing interest in adapting to this digital revolution: “We hope the government can allow this.”
Shariah Advisory Council’s Perspective
On the religious front, Malaysia’s Shariah Advisory Council has taken steps to recognize digital currencies as property from an Islamic perspective, further legitimizing their use in a predominantly Muslim society. This aligns with a study from the Journal of Fatwa and Falak Selangor, which adds credibility to the role of cryptocurrencies within Islamic finance principles.
Regulatory Framework in Malaysia
Bank Negara Malaysia (BNM) remains the primary authority overseeing the regulation of cryptocurrencies. Several key legislative acts govern the space:
Central Bank of Malaysia Act: Defines legal tender and BNM’s monetary policy powers.
Financial Services Act: Oversees financial institutions and payment systems related to cryptocurrencies.
Anti-Money Laundering and Anti-Terrorism Financing Act: Tackles illicit activities involving cryptocurrencies.
Additionally, the Capital Markets and Services Order classifies certain cryptocurrencies as securities, subjecting them to strict oversight by the Securities Commission Malaysia. Non-compliance with these regulations can lead to serious penalties, including fines up to 10 million ringgit (approximately $2.5 million) or imprisonment.
Taxation and Regulatory Enforcement
Cryptocurrency traders in Malaysia are required to declare their profits, with the tax implications varying depending on their activity level. Frequent traders must declare their profits as taxable income, while infrequent traders may be able to treat their earnings as capital gains, which remain untaxed under current laws. The government has stepped up its enforcement, ensuring tax compliance in the digital asset space.
Ops Token: Malaysia’s Crackdown on Crypto Tax Evasion
In June 2024, the Inland Revenue Board (IRB) launched a targeted operation called “Ops Token” to address tax evasion in the cryptocurrency sector. Raids across multiple locations resulted in the seizure of devices and data, helping authorities track significant cryptocurrency transactions that had gone unreported. IRB CEO Datuk Abu Tariq Jamaluddin issued a warning to crypto traders, emphasizing the importance of tax declaration to avoid penalties.
Tackling Illegal Bitcoin Mining
Malaysia has also been clamping down on illegal cryptocurrency mining activities, particularly those involving stolen electricity. In August 2024, seven individuals were arrested for their involvement in such operations, which reportedly cost the nation over $723 million between 2018 and 2023. Authorities made a dramatic statement by destroying 985 confiscated Bitcoin mining rigs, valued at $452,000, in an effort to deter further illegal activity.
Challenges and Future Directions
Despite these efforts, Malaysia’s regulatory framework still faces significant challenges. A study from the Journal of Management Theory and Practice highlighted a lack of comprehensive legislation specifically tailored to digital assets, leading to uncertainty for businesses and investors. Issues such as consumer protection, fraud prevention, and blockchain technology complexities remain unresolved.
What’s Next for Cryptocurrency in Malaysia?
To enhance its regulatory landscape, Malaysia could consider implementing clearer cryptocurrency legislation, improving consumer protection, and establishing a licensing framework similar to Singapore’s model. Collaboration between regulatory bodies will also be key to addressing the multifaceted nature of cryptocurrencies.
Balancing innovation with robust regulation will be critical as Malaysia navigates the evolving world of digital finance.
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