In Malaysia, cryptocurrencies are not recognized as legal tender, with the ringgit being the sole official currency as per the Central Bank of Malaysia Act. This effectively excludes cryptocurrencies from legal tender status, although the Act does not prohibit their use. Cryptocurrencies, however, are classified as securities under the Capital Markets and Services Order, placing them within a regulated framework overseen by Securities Commission Malaysia.
Progressive Government Stances on Cryptocurrency
While cryptocurrencies remain outside the definition of legal tender, there have been calls for a more progressive stance. Notably, in March 2022, Zahidi Zainul Abidin, the deputy minister of the Communications and Multimedia Ministry, suggested that Malaysia should consider adopting bitcoin and other cryptocurrencies as legal tender. Despite this, no formal action has been taken to elevate cryptocurrencies to such status.
Religious authorities have also weighed in, with the Shariah Advisory Council recognizing digital currencies as a form of property from an Islamic perspective. This gives cryptocurrencies a form of legitimacy within Malaysia’s predominantly Muslim society.
Key Legislation Governing Cryptocurrency in Malaysia
The regulation of cryptocurrencies in Malaysia is multi-faceted and governed by various legislative frameworks:
- Central Bank of Malaysia Act: Establishes the ringgit as the sole legal tender.
- Financial Services Act: Governs financial institutions and payment systems, extending to cryptocurrency-related activities.
- Anti-Money Laundering, Anti-Terrorism Financing, and Proceeds of Unlawful Activities Act: Targets illicit activities in the cryptocurrency space.
Additionally, under the Capital Markets and Services Order, certain digital currencies and tokens are classified as securities, bringing them under the purview of the Securities Commission Malaysia. Businesses dealing in cryptocurrencies must obtain the necessary licenses, with non-compliance potentially resulting in penalties of up to 10 years in prison or a fine of 10 million ringgit (approximately $2.5 million).
Taxation and Enforcement on Cryptocurrency Trading
Cryptocurrency trading in Malaysia is subject to taxation, particularly for active traders on Digital Asset Exchanges. Active traders must declare their profits in their annual income tax returns. However, infrequent traders may classify their earnings as capital gains, which are not taxed under current Malaysian law, as noted by research in the Journal of Management Theory and Practice.
In June 2024, the Inland Revenue Board (IRB) launched Ops Token, an initiative aimed at combating crypto tax evasion. The operation targeted traders who failed to declare their earnings, resulting in a crackdown on undeclared digital assets.
Crackdown on Illegal Bitcoin Mining
Although cryptocurrency mining is not illegal in Malaysia, authorities have taken a strong stance against illegal mining operations using stolen electricity. In August 2024, Malaysian authorities arrested several individuals involved in illegal crypto-mining operations, which had cost the country approximately $723 million in stolen electricity from 2018 to 2023. Authorities have also destroyed 985 Bitcoin mining rigs worth $452,000 as part of their enforcement actions.
Challenges and Future Directions for Cryptocurrency in Malaysia
Despite the establishment of a regulatory framework, Malaysia faces significant challenges in managing its growing cryptocurrency market. Research published in the Journal of Fatwa and Falak Selangor highlights gaps in the current legislation, including the lack of comprehensive consumer protection measures and technological clarity for blockchain and decentralized finance (DeFi).
To address these issues, Malaysia could consider several improvements:
- Developing clear cryptocurrency legislation that offers legal clarity for businesses and investors.
- Implementing robust consumer protection measures to safeguard against fraud and market manipulation.
- Introducing a licensing framework similar to Singapore’s to streamline cryptocurrency operations.
- Enhancing collaboration between regulatory bodies to ensure comprehensive oversight of the complex cryptocurrency landscape.
Conclusion
As Malaysia continues to navigate its evolving cryptocurrency regulatory framework, striking a balance between innovation and regulatory compliance will be crucial. The government’s efforts to improve enforcement, consumer protection, and tax compliance, alongside the rising interest in digital assets, suggest that cryptocurrency will play an increasingly significant role in Malaysia’s financial future.
