South Africa Aims to Tax Cryptocurrency via a New Draft Legislation

3 min read

Africa has increasingly shown its interest in the crypto sector and everything it covers. Recently, the South African Revenue Service (SARS) has launched a draft cryptocurrency tax legislation to delimit a special framework for virtual assets in the country.

Hi Traders,

Not surprisingly, more and more countries have changed government legislation to include restrictions on the use of digital assets, and locations in Africa are no exception. The South African Revenue Service (SARS) has published a draft crypto tax legislation that follows the announcement of SARS made back in April 2018 when the agency declared it will definitely create a legislative regulatory framework to control revenue from cryptocurrency- powered transactions.

“In South Africa, the word “currency” is not defined in the Income Tax Act (the Act).  Cryptocurrencies are neither official South African tender nor widely used and accepted in South Africa 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 press release published in April stated.

South Africans to be legally obliged to share the revenue from crypto activities

According to the draft, cryptocurrencies such as Bitcoin (BTC) will be considered intangible assets and will be subject to taxation. Once the draft is approved, South Africans will be legally obliged to share the revenue from crypto activities.

In addition, under the new draft legislation, cryptocurrency transactions will be discharged from the Value-Added Tax (VAT) as SARS considers them to be different from standard financial services. So, note that acquiring, selling, trading, issuing, and keeping cryptocurrencies will not have to do with VAT.

Speaking for iAfrikan, partner at Johannesburg-based Hogan Lovells, Natalie Napier, briefly outlined the vision on the new draft legislation:

“The proposed changes will have a limited effect, if at all, on the day to day use of cryptocurrencies. 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 went on to say that the tax legislation will be subject to some changes if any detail is to be corrected.

Author: Adriana Midrigan

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