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Bitcoin Tax to Come to South Africa in Early 2018

Published

7 years ago

February 4, 2018

As bitcoin continues to gain momentum in South Africa, taxpayers will need to prepare themselves for an increased probe into their cryptocurrency gains declarations. This is after the South African Revenue Service (SARS) confirmed that it will explain its position on the tax treatment for virtual currencies in early 2018 but SARS’ stand on digital currencies will not be published before the February Budget Speech.

Despite a price decrease in mid-December, bitcoin was still trading at more than 750 percent higher on than it was only one year ago. 2017 was essentially the year that bitcoin became mainstream as an investment, which has led to this incredible increase in value. However, as tax authorities have started to eye this development, taxpayers involved with cryptocurrencies could face a higher tax bill in 2018 if they have taken profits on their crypto asset investments in the past year.

SARS Interest in Tracking Digital Currencies

In mid-2017, the South African Reserve Bank (SARB) stated that they would test a regulatory framework for bitcoin and other virtual currencies. In December 2017, SARS would also show interest in working with SARB and top technology firms to research ways of tracking cryptocurrencies to have all investment profits from cryptocurrencies taxed in an effective manner.

To audit the money gained from cryptocurrencies in recent years, SARS will need close to two years to perform a detailed investigation. Any taxpayers that intentionally omits to declare their gains or profits will end up paying penalties of up to 200 percent and interest, said the Managing Director for Tax and Exchange Control at the Geneva Management Group, Ruaan van Eeden.

“The fact that SARS hopes to provide guidance on the tax treatment of cryptocurrencies soon, suggests that it plans to scrutinise this space much more carefully,” adds, CA(SA) and Senior Lecturer in the School of Accountancy at the University of the Witwatersrand, Asheer Jaywant Ram.

The South African tax authority finds itself under pressure to increase its tax collection efforts after the Medium-Term Budget Policy Statement (MTBPS) reported that the tax revenue was expected to drop by almost R51 billion short of the budget estimates of 2017. Attempts to establish free tertiary education and stabilise Eskom – the struggling power utility – is expected to increase pressure on the fiscus. Still, it is not clear whether there is an outstanding amount of money hidden in the crypto space and if so, how much.

“I think there is enough interest and there is enough scope for SARS to be looking into this space, but now the question becomes – because SARS is really under pressure to reduce that deficit – are they really going to accept taxpayers declaring their gains as capital gains tax or are they going to just say it is all revenue in nature?” asked Ram.

SARS’ Challenge

The main challenge SARS will face is explaining to taxpayers whether gains will be construed as income instead of capital. If they do not go with the latter, taxpayers will be forced to pay higher tax rates. While SARS might define gains are income, people might argue that their gain are capital gains depending on the facts. If gains are capital gains in nature, the capital gains tax would apply. However, if it is seen as income, the cryptocurrency price fluctuation gains will get taxed at the taxpayer’s marginal income tax rate.

“Those sorts of debates on the nature of bitcoin – I think those are coming – and I think it would be very interesting to actually see the outcome of those debates. The main challenge in trying to determine a bitcoin trader or investor’s tax liability is the question around the nature of the bitcoin,” said Ram.

Van Eeden remarked by saying that bitcoin’s obscure nature and how it functions creates uncertainty on its tax treatment. Moreover, there is lack of clarity on whether bitcoin is an asset or a currency as this varies from one jurisdiction to the other. As such, the different classifications have an immense implication for its taxation. While most jurisdictions see it as an asset, some – like Japan – see it as a currency and have categorised it as a legal payment method.

Is Bitcoin an Asset or a Currency?

A report by Robert Gad, Nicolette Smit, Megan McCormack, Jo-Paula Roman from the tax department at ENSafrica that considers South Africa’s position on bitcoin, states:

“Where bitcoin is used as consideration for the supply of goods or services, and it is determined that bitcoin may be viewed as an asset rather than currency for VAT, the trade would likely be akin to a barter transaction.”

“Where bitcoin is traded – i.e. bought and sold for cash – the VAT consequences for both parties would depend on a detailed analysis of the exact facts of each case. This would be of particular relevance to taxpayers that may exceed the VAT registration threshold through their bitcoin trades,” the report continues.

Businesses are expected to register for VAT if the total value of the taxable supplies in any twelve-month period is expected to surpass R1 million. Still, in jurisdictions that bitcoin is viewed as an asset – having VAT consequences when bought or sold using an enterprise – there are territories that exempt it from both their VAT as well as the Good and Services Tax (GST) rule.

A good example is in Australia where bitcoin is seen as an asset, but the Australian Tax Office has not levied any GST on the purchase and sale of cryptocurrencies since July 1, 2017, making it lack consistency since it remains a capital gains asset for tax purposes, noted Ram.

This shows the ostensible nature of bitcoin, which is seen as a currency and an asset at the same time. While there are doubts on whether the international jurisdictions will consent to a uniform measure when it comes to regulating bitcoin, the German Central Bank has already called for a global regulation regarding digital currencies.

As SARS is closing in on finalising tax regulations for bitcoin in South Africa, it will not only be the first country in Africa to do so but may also end up providing a tax framework that other African nations with large cryptocurrency communities could adopt.

News

Weekly Roundup: Africa’s Cassava Network Partners with UniPass to Expand Crypto Adoption in Africa & More

Published

2 years ago

March 9, 2023

Rachael Odhiambo

In this week’s news roundup, you will read about Cassava Network, an African Web3 platform that has partnered with UniPass to advance crypto adoption in Africa, and more.

African Web3 Platform, Cassava Network, Partners with Self-custody Crypto Wallet to Expand Crypto Adoption in Africa

Cassava Network, an African Web3 platform with a focus on gaming, non-fungible tokens (NFTs), and rewards, has announced the launch of the third version of its platform that features integration with UniPass, a non-custodial smart contract, enabling users to use their email addresses instead of seed phrases and gas.

The partnership will enable Cassava Network to onboard Africans from Web2 to Web3 as users will be able to create Cassava accounts and automatically sign up to UniPass where they will be able to send, receive, and store on-chain digital assets across various Ethereum Virtual Machine (EVM) blockchains.

Speaking about the launch of the new platform version, Mouloukou Sanoh, Co-founder of Cassava Network, said, “Cassava v3 serves as a bridge for global Web3 businesses to connect with African Web2 users.”

Sanoh went ahead to mention that 90 percent of the partners engaging with the community feature of the new version are African businesses.

Benjamin Obenze, Cassava Network’s Business Developer, in an interview said that African users and businesses will be able to use the new platform version to enter Web3 spaces.

Nigeria Leads the African Continent with Crypto Leverage Searches on Google

According to an analysis of Google searches done by Leverage Trading, Nigeria scored the second-highest globally (94) for searches related to crypto leverage in the last five years.

Singapore is the only country that outscored Nigeria with a score of 100 regarding searches but with more emphasis on transactional searches like ‘how to leverage trade crypto’. South Africa and Ghana follow Nigeria closely as both countries have also dominated Google searches for the term ‘trade crypto.’

Despite Nigeria leading in the crypto leverage searches and South Africa and Ghana following closely, Leverage Trading established that Africa still lags behind when it comes to searches for the term ‘stock leverage.’

To learn more about Bitcoin, download the Bitcoin Beginner’s Handbook for free.

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Weekly Roundup: Kenyan Senate in Discussion with CBK to Legalise Bitcoin & More

Published

2 years ago

February 22, 2023

Rachael Odhiambo

In this week’s news roundup, you will read about the Senate initiating talks with the Central Bank of Kenya to develop policies on digital assets, Zambia’s move to test the tech it desires to use for crypto regulation, and more.

Kenya’s Senate to Hold Discussions with CBK to Legalise Digital Assets

The Committee on Information, Communication & Technology, under the Senate of the Republic of Kenya, has made its intention known that it will engage the Central Bank of Kenya (CBK) and other stakeholders to develop policies on the use of crypto assets and virtual service providers in the country.

The news was shared on the official Twitter page of the Senate of Kenya. The committee is keen on facilitating the development of a crypto regulatory framework that can enable Kenyans to carry out safe and secure crypto transactions. Moreover, the committee also noted that having regulations on cryptocurrency use in the country will help Kenya to harness the benefits of financial innovation while curtailing the risks associated with digital assets. The committee also stated that it is committed to accelerating the implementation of the country’s Central Bank Digital Currency (CBDC).

Despite these new developments, the CBK hasn’t outrightly changed its stance on virtual currencies like Bitcoin not being a legal tender. However, the CBK, in 2022, published a discussion paper calling on Kenyans to share their opinions on CBDC as it looked to explore the potential implementation of a CBDC.

Zambia Testing Technology for Crypto Regulation

The Bank of Zambia and the country’s securities regulator are currently testing technology to allow for the regulation of cryptocurrencies. The news was shared by Zambia’s Technology and Science Minister, Felix Mutati, on the ministry’s website in a move that is aimed at achieving an inclusive digital country.

Speaking about the news, Mutati stated that cryptocurrency is the future that the country desires to achieve,” but a policy framework is required to support this “revolutionary technology.” He went ahead to state that the testing of the technology that will potentially be used to regulate cryptocurrencies in the country will be upscaled in due time as part of deliberate efforts to achieve an inclusive digital economy in the country.

In addition, the minister also claimed that Zambia aspires to become a technology hub in Africa by developing digital infrastructure and attracting investments in the sector.

South African Startup Momint Keen to Boost Electricity Generation Utilising Blockchain-Based Solution

Momint, a South African startup, recently announced that it had launched a blockchain-powered solution that can alleviate the country’s energy distress by installing more rooftop solar systems in public institutions such as schools and hospitals.

The company has so far piloted the solution at one local school – Delmas High School – in Mpumalanga Province, South Africa, according to a news report published by News 24. According to the report, investors who are keen to participate in the project can do so by acquiring non-fungible tokens (NFTs) that are linked to solar cells and retail for just under $9.

The solar cells will then be leased to institutions that agree to buy the generated electricity through a standard power purchase agreement.

Speaking of his company’s solution, Ahren Posthumus, Momint’s CEO, said, “We are a technology company that’s trying to build for the next 15 years, but what we realized is we can’t build a technology company in a country that doesn’t have electricity.”

To learn more about Bitcoin, download the Bitcoin Beginner’s Handbook for free.

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Weekly Roundup: South Africa Introduces New Cryptocurrency Standards to Advertising Code & More

Published

2 years ago

February 10, 2023

Rachael Odhiambo

In this week’s news roundup, you will read about South Africa’s new clause on its advertising code targeted towards the cryptocurrency sector and more.

South Africa Introduces New Cryptocurrency Standards to Advertising Code

The South African Advertising Regulatory Board (ARB) has introduced a new clause targeted at the crypto industry and aimed at protecting consumers from unethical advertising.

According to the new clause introduced to Section III of the country’s advertising code, both companies and individuals in South Africa will be required to abide by certain advertising standards in relation to the provision of crypto products and services. The first clause makes it mandatory for adverts, including crypto offerings, to clearly express that crypto investments may result in the loss of capital given the volatile nature of cryptocurrencies. In addition, crypto adverts should not contradict warnings about potential investment losses that investors may face.

The clause also went ahead to emphasize that adverts for particular services and products must be explained in an easily understandable manner for the target audience. Advertisements must also have balanced messages around benefits, features, returns, and risks associated with the particular service or product.

Rates of returns, projections, or any kind of forecasts must also be sufficiently substantiated, including how they are calculated and what conditions apply to touted returns. Moreover, any information relating to a crypto product or service’s past performance will not be used to promise future performance or returns, and should, therefore, not be presented in a way that creates ‘a favourable impression of the advertised product or service.’

The clause went on to state that adverts from crypto service providers who aren’t registered credit providers should not push for the acquisition of digital currencies using credit. However, this does not prevent the advertising of associated payment methods provided by crypto service providers. In the same breadth, brand ambassadors and social media influencers will also be expected to comply with certain advertising standards, such as sharing factual information and not offering advice on investing or trading in crypto assets as well as the prohibition of promises of benefits or returns.

Central African Republic Keen on a Legal Framework for Cryptocurrency Adoption

Central African Republic (CAR) has set up a 15-member committee that will be responsible for developing a bill on the use of cryptocurrencies and tokenization in the region.

Once developed, the legal framework will enable cryptocurrencies to operate in the Central African Republic and expedite the development of the country’s economy. CAR’s President, Faustin-Archange Touadéra, believes that digital currencies will help eliminate the country’s financial barriers and build a business-friendly environment that’s supported by a legal framework for crypto usage in the country.

He went on to say, “With access to cryptocurrencies, the monetary barriers existing until now will disappear, the main objective of the measures adopted by the government being the development of the national economy.”

The committee tasked with drafting the crypto bill comprises 15 experts from five different ministries of CAR, including the Ministry of Mines and Geology, the Ministry of Waters, Forest, Hunting and Fishing, the Ministry of Agriculture ad Rural Development, the Ministry of Town Planning, Land Reform, Towns and Housing and Ministry of Justice, Promotion of Human Rights and Good Governance.

To learn more about Bitcoin, download the Bitcoin Beginner’s Handbook for free.