As cryptocurrency interest and adoption continues to grow in South Africa, so do authorities’ requirements for regulations. Even though Bitcoin is nearly a decade old, cryptocurrency is still in its nascent phase.
While early adopters were rejoicing and cashing out during December 2017’s bull run, novices were scrambling to get their digital wallets set up to be part of the action. Because of all of that crypto spotlight, authorities are trying to develop and implement regulations and guidelines sooner rather than later. South Africa’s Department of the National Treasury is one such entity.
Cryptocurrencies bringing forth change
While obviously not regulating virtual currencies, the agency has put forth a proposal to make some changes to the Income Tax Act to set about determining how Bitcoin and its brethren are taxed in the country.
According to MyBroadband, the draft Taxation Laws Amendment Bill (TLAB) hopes to add cryptocurrencies to three sections:
• The definition of financial instruments of the Income Tax Act
• The definition of financial services in the VAT Act
• The ring-fencing of assessed loss provisions of the Income Tax Act
What does it all mean?
Tertius Troost, who is a senior tax consultant at Mazars, gave his input:
“The clarification of the VAT treatment will be well received, especially on the basis that the issue, acquisition, collection, buying or selling or transfer of ownership of any cryptocurrency will be included under the definition of financial services in terms of section 2 of the VAT Act. If accepted, all dealings in cryptocurrencies will be exempt from VAT.”
He went on to add:
“This means there will be no VAT input claims on the acquisition of cryptocurrencies, and no VAT output being levied on the disposal of cryptocurrencies.”
Another piece of good news, especially after the April 1st increase, is that VAT on any costs involved in purchasing crypto and even mining it may not be claimed as VAT input. This means that virtual currencies will be treated in a similar way to shares.
However, there is a dark cloud to the silver lining. Troost added:
“Treasury has proposed to include the acquisition or disposal of any cryptocurrency under the ring-fencing of assessed loss provisions (colloquially referred to as suspect trades). This will result in cryptocurrency dealers not being able to offset the losses incurred from the dealing in cryptocurrencies from any other trade. In other words, these losses are ring-fenced to be used only against future profits earned from cryptocurrencies.”
The good news is that these proposed changes do not affect crypto users who are holding their virtual currencies as capital gains, which they will have to declare come tax season.
Crypto Is Here to stay
While some may view any type of regulation detrimental to the decentralized allure of the cryptocurrency industry, others see it as a sign that governments and authorities are viewing it as a part of the future, which is why they are looking at ways to incorporate it into their financial systems.
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