Blockchain and cryptocurrencies have proliferated the minds of millions across the world, as trading and crypto asset ownership continues to rise.
In the same breathe, many countries across the world have taken a tough stance against cryptocurrencies in particular. Some, like China, have outlawed their use, while others like Malta are at the forefront of cryptocurrency and blockchain development.
In an African context, this sector is slowly growing. At the southern end of the continent, South Africa sits in an interesting position. As one of the bigger economic hubs of Africa, it has the potential to lead the way in terms of blockchain development and cryptocurrency adoption.
With that being said, it’s worth considering what the current climate is like in the country and what efforts are being made to drive innovation and acceptance of this burgeoning new industry.
The tax man
Cryptocurrency trading has become immensely popular over the past two years — as was demonstrated in the latter half of 2017, when Bitcoin and a number of altcoins cruised to all-time highs.
During this period, plucky investors flocked to the market in the hopes of cashing in on a spiralling bull run that made many early investors substantial sums of money.
Across the world, cryptocurrency exchanges were inundated with new users looking to open up accounts and get their hands on the increasingly valuable Bitcoin and the like.
Some people made massive profits while others were left watching their investments decline in value during the resulting correction. That didn’t change the fact that the tax man wanted his pound of flesh from those that had cashed in their profits.
This was the case in South Africa, where the South African Revenue Services (SARS) made it clear to registered taxpayers that they would be liable to pay tax on cryptocurrency gains.
How crypto is classified in South Africa
As the SARS pointed out, the word ‘currency’ is not defined in the Income Tax Act. It’s important for people to understand this because it means that cryptocurrencies themselves are not taxable.
“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.”
However, the value of a given amount of cryptocurrency can be valued in South African rands, and any income received or accrued from cryptocurrency trading can be taxed under the laws of gross income.
Simply put, South Africans that are actively trading cryptocurrency will be liable to pay tax on any income made.
Don’t stress, it’s legal
In a South African context, the use of cryptocurrencies is legal. There are no laws governing the sector although the South African Reserve Bank (SARB) is monitoring the situation.
The Reserve Bank issued a white paper outlining its views on cryptocurrencies in 2014. The institution does not recognize any cryptocurrency as legal tender.
In South Africa, the Reserve Bank has the sole right to issue and manage money, in…