Cryptocurrencies are not legal tender in Malaysia but are classified as securities
Cryptocurrencies are not recognized as legal tender in Malaysia. The Central Bank of Malaysia Act makes the ringgit the sole legal tender in the country, thereby excluding cryptocurrencies from this status. Although the law does not explicitly ban cryptocurrencies, it limits the definition of legal tender to the ringgit. However, cryptocurrencies are classified as securities under the Capital Markets and Services Ordinance. This classification gives them a defined legal status within Malaysia’s financial regulatory framework.
There have been calls within the government to take a more progressive stance towards cryptocurrencies. In March 2022, Zahidi Zainul Abidin, Deputy Minister of the Ministry of Communications and Multimedia, suggested that Malaysia should adopt bitcoin and other cryptocurrencies as legal tender. “We hope the government can allow this,” Zahidi told parliament, according to Bloomberg.
Additionally, religious authorities in Malaysia, such as the Securities Commission’s Sharia Advisory Council, have recognized digital currencies as a form of property from an Islamic perspective, further legitimizing their use within the country’s predominantly Muslim society, according to a study published in the Journal of Fatwa and Falak Selangor.
Regulatory framework and key legislation
Bank Negara Malaysia, the country’s central bank, is the main authority overseeing cryptocurrency matters in Malaysia.
The main legislative acts governing the regulation of cryptocurrencies:
- Central Bank of Malaysia Act: defines the legal tender and authority of the BNM in matters of monetary policy.
- The Financial Services Act: regulates financial institutions and payment systems, including those related to cryptocurrencies.
- Anti-Money Laundering, Terrorist Financing and Proceeds of Illegal Activities Act: combating illicit activities involving cryptocurrencies.
The Capital Markets and Services Ordinance further strengthens the regulatory framework by classifying certain digital currencies and tokens as securities. This places them under the purview of the Securities Commission of Malaysia, imposing additional compliance requirements on cryptocurrency businesses, including obtaining the necessary licenses to operate legally. Organizers of unregistered coin offerings face up to 10 years in prison or a fine of up to 10 million Malaysian ringgit (about $2.5 million).
In terms of taxation, active traders operating on digital asset exchanges are required to report their profits in their annual tax return. However, casual traders may be able to classify their income as capital gains, which is not taxable in Malaysia, according to a study published in The Journal of Management Theory and Practice. The government has recently strengthened enforcement of these tax regulations.
Crackdown on crypto tax evasion
In June 2024, the Inland Revenue Board of Malaysia launched a special operation called “Ops Token” to combat tax revenue leakage related to cryptocurrency trading. The operation involved raids on 10 locations in the Klang Valley, carried out by 38 members of the Royal Malaysian Police and CyberSecurity Malaysia, according to Cointelegraph.
IRB CEO Datuk Abu Tariq Jamaluddin has warned crypto traders to file their taxes promptly or face compliance action. “Through this operation, cryptocurrency trading data stored on mobile devices and computers was found, and we managed to identify the value of the digital assets traded, which caused a very significant leak of tax revenue,” the IRB said.
Crackdown on illegal Bitcoin mining
Although cryptocurrency mining is not banned in Malaysia, authorities have stepped up efforts against illegal operations using stolen electricity. As of August 2024, seven people have been arrested for such activities, as reported by Cointelegraph. The scale of the problem is significant, with the country’s Deputy Energy Minister revealing that illegal crypto mining operations cost an estimated $723 million in stolen electricity between 2018 and 2023.
In a display of law enforcement, Malaysian authorities used a steamroller to destroy 985 confiscated Bitcoin mining rigs worth $452,000. This action echoes a similar event in 2021, when mining equipment worth $1.25 million was destroyed.
Challenges and future directions
Despite Malaysia’s efforts to regulate cryptocurrencies, significant challenges remain. According to the study published in the Journal of Fatwa and Falak Selangor, the current regulatory framework lacks comprehensive legislation specifically tailored to digital assets. This gap creates uncertainty for companies and investors operating in the cryptocurrency space.
A key issue, as a study in the Journal of Management Theory and Practice highlights, is the lack of clear guidelines for consumer protection in cryptocurrency transactions. Unlike traditional financial products, crypto investments lack safeguards against fraud or market manipulation. Additionally, the regulatory framework does not adequately address the technological complexities of blockchain and decentralized finance.
To improve its regulatory landscape, Malaysia could consider:
- Develop comprehensive cryptocurrency legislation to ensure legal clarity.
- Implement stronger consumer protection measures for crypto investors.
- Establish a licensing framework for cryptocurrency businesses, similar to the Singapore model.
- Improve collaboration among regulators to address the multifaceted nature of cryptocurrencies.
“Regulations may also vary by state, as different regions may have distinct local laws, particularly regarding the principles of Islamic finance. This regulatory fragmentation can pose challenges for businesses and crypto users, who must comply with both federal guidelines and state-specific decisions,” said Andrey Kuznetsov, co-founder and CTO of Haqq Blockchain, in an emailed statement. Striking a balance between innovation and regulatory compliance will be vital for cryptocurrencies in Malaysia.
