The South African Revenue Service (SARS) announced recently that South Africans who own Bitcoin and other cryptocurrencies must declare any gains or losses made from these currencies or else face harsh penalties as a result.
“The onus is on taxpayers to declare all crypto-currency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties,” declared SARS.
For income and capital gains tax purposes, South Africa’s national tax authority has defined Bitcoin and similar digital currencies as intangible assets instead of currencies since these are not official national tender and are not widely used and accepted in the country.
“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.
As reported by NewsBTC, SARS specifically declares that “taxes are applicable to cryptocurrency mining, trades on cryptocurrency exchanges, and the purchase of goods and services using digital money,” while “taxpayers can claim expenses associated with cryptocurrency accruals or receipts, as long as they are related to income generation and for purposes of trade.”
More specifically, as explained by Jen Luker for ETHNews, SARS defined taxation for cryptocurrencies under three distinct scenarios:
- “Until cryptocurrency that is acquired through mining is bartered or exchanged for fiat, it is considered ‘held as trading stock.’ Once it is exchanged, it would fall under the subsequent scenarios.
- Cryptocurrency can be exchanged for fiat, either through established exchanges or through private transactions.
- When a cryptocurrency is exchanged for goods or services, ‘normal barter transaction rules apply.’”
Furthermore, “pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies,” said SARS with regards to the application of a value-added tax to cryptocurrencies.
SARB Establishes Unit to Design Cryptocurrency Regulatory Framework
South Africa’s Reserve Bank (SARB) is currently working alongside the country’s National Treasury, Financial Services Board and Financial Intelligence Centre to develop a solid and comprehensive regulatory framework for digital currencies.
SARB recently put together a special unit to deal with cryptocurrencies and their regulation.
According to NewsBTC, this new division “will be tasked with establishing a self-regulatory approach to the cryptocurrency industry, which would translate into a non-governmental body that aims to preventing systemic risk but enabling enough innovation to keep pace with other jurisdictions.”
Bridget King, SARB’s Director of Banking Practice, emphasized the need for flexibility as overregulation might hinder the sector in the long run.
“Regulating cryptocurrencies prematurely could have the negative consequence of throttling the growth and innovation of the industry…In addition, if laws are drafted based on existing technology, which is still in its growth phase, there is a risk that the technology may have moved so much by the time the legislation is enacted, that the legislation is obsolete or requires updating almost immediately to align with the latest technology,” King said.
Furthermore, King said, “The aim of this project is to gain a practical understanding of DLTs through the development of a PoC [Proof-of-Concept] in collaboration with the banking industry. The objective of the POC is to replicate interbank clearing and settlement on a DLT [distributed ledger technology] which will allow the SARB and industry to jointly assess the potential benefits and risks of DLTs.”
This move comes at a good time as cryptocurrency activity is booming in Africa, particularly in South Africa.
As reported by NewsBTC, global wallet and exchange Luno says there was “2000 BTC worth of transactions in November 2017, when the coin’s price was hovering in the $10,000 range, and approximately 37% of those transactions occurred in South Africa.”
Furthermore, South Africa has seen “the opening of at least 15 new trading venues in South Africa within the past year alone.”
What is your jurisdiction doing with regards to the regulation of Bitcoin and other cryptocurrencies?
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