Africa’s blooming cryptocurrency industry has been operating in a legal gray area, a situation that has left the traders, developers, enthusiasts, and investors to their own devices. However, recent developments in South Africa are beginning to build optimism on a future where crypto is regulated – a number of stakeholders in the crypto industry have expressed their belief that regulation is the key to the industry’s prosperity.
Earlier this year, the South African Revenue Services (SARS) announced that they would begin taxing income from crypto and it has made good on this promise and is now drafting a crypto tax law which will outline the virtual assets law thus effectively creating a framework for crypto revenue systems. Taxpayers in the country were told they are expected to include gains and losses from trading cryptocurrencies in the taxable income reported in the tax returns.
“In South Africa, the word ‘currency; is not defined in the Income Tax Act (the Act). Cryptocurrencies are either official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature,” reads an April statement issued by SARS.
“The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”
The draft of the crypto regulations on tax has exempted crypto from value-added tax (VAT), a move that has shown an element of leniency towards the budding industry. As quoted above, SARS believe that crypto transactions are separate from financial service transfers and this is what influenced the exemption of crypto from VAT.
Tracking Crypto Traders
SARS is reportedly working on ways of improving the tracking of cryptocurrency traders and their transactions in a bid to verify whether or not they are paying taxes. According to the authority’s commissioner, Mark Kingon, identification of the cryptocurrency traders is the main issue and therefore the most critical aspect of taxation when it comes to the crypto industry.
“The key thing is identifying people who are trading because it’s easy to say cryptocurrency gains must be deductible, but there are also those who lose. That’s why it’s important to identify the trader,” he said.
He also noted that despite the fact that they have procedures in place to identify traders, the issue was not entirely straightforward especially because a significantly large number of the South African crypto traders use foreign bank accounts while some conduct these transactions in other jurisdictions.