The South African Revenue Service (SARS), the revenue service of the South African government, is ordering taxpayers to declare cryptocurrency gains and losses or risk facing penalties, regardless of how unclear the tax rules are at the moment.
South Africa’s revenue service has defined cryptocurrencies as intangible assets, instead of a currency, for income tax purposes or capital gains tax. All the cryptocurrency-related income must be declared and the onus is on taxpayers as failure to comply may result in interest and penalties.
“Whilst not constituting cash, cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of ‘gross income’ in the Act”, said SARS. The agency offers guidance to taxpayers who are uncertain about specific transactions involving cryptocurrencies.
According to SARS, taxes are applicable to cryptocurrency mining, trades on cryptocurrency exchanges, and the purchase of goods and services using digital money. On the other hand, taxpayers can claim expenses associated with cryptocurrency accruals or receipts, as long as they are related to income generation and for purposes of trade.
Regarding value-added tax (VAT), the South African government is still considering how to apply to cryptocurrencies: “Pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies,” said SARS in a statement.
The regulatory framework for cryptocurrencies is still pending review as the South African Reserve Bank (SARB) is working with the National Treasury, the Financial Services Board and the Financial Intelligence Centre to evaluate what they consider to be the best approach.
SARB has recently created an investigative unit to monitor the crypto space and to set up a proof of concept (PoC) for DLT-based interbank clearing and settlement. A priority for the SRO would be to ensure the nascent industry is not over-regulated so it can blossom. In January, SARB established a fintech task force to review the central bank’s position on private cryptocurrencies and addressing regulatory issues such as clearing and settlement risks, exchange control impacts, monetary policy and financial stability.
The surge in popularity of cryptocurrencies has contributed to the opening of at least 15 new trading venues in South Africa within the past year alone. The country’s central bank has launched a program that will trial JPMorgan’s Quorum blockchain in interbank clearing and settlement.
According to Luno, a global wallet and cryptocurrency exchange that boasts 1.5 million users spread across 40 countries, South Africa accounted for 37% of Bitcoin transactions occurred in November 2017, when the price of BTC was hovering in the $10,000 range.
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