Back in April, the South Africa Revenue Service (SARS) announced that it had plans to tax cryptocurrency. In a statement released to media houses back then, the SARS explained that Cryptocurrencies were regarded as assets of an intangible nature and thus were subject to income tax.
“In South Africa, the word ‘currency’ is not defined in the Income Tax 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,” read the statement.
Interestingly, South Africans welcomed this move as it assured them of government support in the use of cryptocurrencies, the opposite of what other African countries have been doing. Last month, SARS proposed draft regulations that affected how cryptocurrencies would be treated in the country.
In the proposed regulations, Cryptocurrencies will continue to be treated as intangible assets and thus will continue to be subject to income tax. This means that South Africans will have to declare their cryptocurrency profits and/or losses when they declare their taxable income.
The draft regulations also touch on the Value-Added Tax (VAT) treatment, as Cryptocurrency transactions are considered a service. SARS clarifies that Cryptocurrency will be treated as an exempt financial service and thus VAT will not be applied to the issue, acquisition, collection, buying, selling or transfer of ownership of any cryptocurrency.
“No VAT will be levied on any cryptocurrency, but SARS deems a cryptocurrency as assets of an intangible nature and therefore SARS will continue to apply normal income tax rules to cryptocurrencies. Affected taxpayers are obliged to declare cryptocurrency their capital or revenue gains or losses as part of their taxable income,” explained Natalie Napier, a partner at Hogan Lovells (a legal firm in South Africa).