Cape Town: Cryptocurrency tax legislation draft has been released in South Africa by the South African Revenue Services (SARS) to define the framework of virtual currency taxation in the country.
SARS issued a press release in April 2018 regarding the cryptocurrency tax legislation draft. There were categorical plans to impose the tax on the earnings from digital currency by the tax agency at that point of time.
The release issued by SARS in April 2018 read, “In South Africa, the word “currency” is not defined in the Income Tax Act (the Act). The digital currencies are neither considered as official South African tender nor widely used or accepted in the country 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.”
The draft classifies the cryptocurrencies like Bitcoin as subtle assets which are subject to income tax. Once the draft legislation comes into the act, it will become mandatory for the crypto traders or buyers of South Africa to declare the earnings from crypto transactions.
VAT Not Imposed on Crypto Transactions
It has also been specified in the draft legislation that there will be no value-added tax (VAT) imposed on the crypto transactions. This has been specified because SARS sees these crypto transactions as different from financial services transactions. With this relaxation, there will be no VAT on purchasing, selling, transfer, ownership, issuing or holding of digital currencies.
Natalie Napier, Partner at the Johannesburg-based Hogan Lovells law firm, explained the draft cryptocurrency tax legislation in a recent conversation with iAfrikan. Talking about the impact of this draft legislation on the crypto market of the country, Napier said that these changes will hardly impact the daily usage of cryptocurrencies.
Napier explained, “For the consumer, the proposal means that the consumer will not have to charge or collect any VAT when undertaking any transaction in respect of any cryptocurrency. The benefit of this is that there will not be any additional VAT charge which would increase the costs associated with transacting with cryptocurrencies.”
Napier also said that further alterations are definitely expected so as to rectify the uncertainties.
Despite the presence of elaborate scams, the digital currency industry has prospered in South Africa. If a recent survey is to be believed, still around 38 per cent of South African citizens aspired that they had invested in cryptocurrencies earlier.