In July of 2017, the South African Reserve Bank (SARB), decided to officially start testing the Bitcoin and other cryptocurrencies in the country for tax purposes. They’ve gained a lot of attention globally and have begun entering the mainstream. Bitcoin was the first cryptocurrency created in 2009. No one knows yet who created it because no one has claimed it although it is known to be an anonymous person or persons that go by the name of Satoshi Nakamoto.
According to the South African government laws, all earnings, trading, profits, and income have abode by the South African revenue regulations. This also applies to virtual currency buying and selling. Which, in turn, means that all Bitcoin transactions and earnings are to be done under tax compliance, otherwise the government has strict rules against it. So, before you go on making any deals online about items that you buy and pay off with Bitcoin, make sure that you reach out to an authorized tax consultant who will help you ensure everything is above board.
The SARS does not yet specify how all cryptocurrency transactions should be made or dealt with, but there a few tax laws that apply to any kinds of transactions. An example of this is the capital gains tax, which applies when you buy a cryptocurrency, and then sell it at a profit. Another example is the income tax, which applies when your normal business transactions and trading are done with Bitcoins. To decide whether your crypto dealings will be implied with capital gains tax or income tax, there are multiple deciding factors, which include the intent of the business dealing, the time duration of the asset being held, and where the finances came from. A few case laws are also applied to decide what kind of taxation will be applied.
Virtual currencies, however, are exempted from trading securities, by the Financial Markets Act of 2012. This could also be applied to cryptocurrencies like Bitcoin). Cryptocurrencies have been warned against, by The Reserve Bank because they don’t have any monitoring or centralization. Which means, that the government has indicated to users and customers that transactions and dealings in Bitcoins are not the responsibility of the government. Which means, that if in the future, a user may face theft or any difficulty in their transactions, the government will not be responsible or may not be able to offer recourse. This makes the user or customer, the sole decider in whether they would like to risk dealing in cryptocurrency or not.
Before any official government recognition, Bitcoin was already being used to trade online and was being purchased by speculators and investors. It is a decentralised currency, which means there is no central body or exchange that overlooks who the Bitcoin goes to, or who gives it away. This made it easy for hackers and infiltrators to demand Bitcoins as ransom. Although Bitcoin transactions are made public on the blockchain and are traceable, they could be obfuscated making them hard to locate.
However, the South African Tax Service(SARS), has its own doubts and questions about the world of cryptocurrency, Bitcoin and the blockchain technology. Involving any such currency on a government level platform may be extremely hazardous to government plans and data, and therefore extreme measures should be taken before integrating this technology.
The Davis Tax Committee which was established by the minister of finance was given the task of reviewing South Africa’s tax policies to make sure that we support inclusive growth, development and financial sustainability. The report noted that cryptocurrency adoption is not widespread in South Africa. It also said that lawmakers should consider the potential impact of such currencies on tax compliance they are said to be monitoring the international rulings on cryptocurrencies closely to help determine the best approach.
Since we mentioned how Bitcoin is untraceable, SARS wants to hire companies who can look into tracking cryptocurrency transactions. They are aware how cryptocurrency transactions and trading may leave a huge line of untraced money exchanging, while also being legal. The head of research at SARS, Randall Carolissen, admitted that they have officially contacted some international technology companies around the world to help in tracking the flow of Bitcoins in the country.
While SARS was already skeptical about Bitcoin and the Blockchain technology, they announced that they would make Bitcoin and cryptocurrency Tax implications clear in the early months of 2018. However, technical companies would still be enforced to look after and monitor Bitcoin trading and exchanging.
While the government may have its reasons and doubts about this currency, despite legalising it, private companies are lining up to integrate cryptocurrency technology. Once tax laws on cryptocurrencies are clearer in the coming months corporate and institutional players will feel more comfortable to enter the market, 2018 is expected to be a year for major growth for Bitcoin and cryptocurrencies in South Africa.