Many regulatory authorities all over the world have for a long time found themselves confused over the classification of cryptocurrencies as currencies or assets. South Africa is one of those countries, but a recent announcement by the South African Revenue Service (SARS) stated that digital currencies should not be classified as currencies but as intangible assets.
The announcement by SARS is part of the government’s plan to tax South Africans who trade cryptocurrencies. The regulatory authority stated that digital currencies will be subjected to regular income tax rules meaning crypto traders might find themselves in trouble for not paying taxes for their crypto gains. This will also apply to cryptocurrency miners in the country.
According to the announcement, SARS considers digital currencies as intangible assets and also said that South Africans in the cryptocurrency market are allowed to claim expenses when declaring their profits. This means the tax gains will be calculated after deducting the expenses. However, determining the tax to be subjected to cryptocurrency gains might be tricky because of the complexity and volatility of the crypto market.
Ettiene Retief, the Chairman of the National Tax and SARS Committee at SAIPA recently stated that the value of digital currencies will be considered when the holder exchanges them for cash or even for other assets. This includes the exchange of cryptocurrencies for assets such as houses or vehicles.
In his statement, Retief pointed out that: “When the miner receives new coins as a reward, the newly-acquired cryptocurrency is held as trading stock until it is realized through an exchange for cash, or as a barter transaction for goods or services.”
Retief also stated that the taxable income on cryptocurrencies will be determined using market value or realized cash value. This means that taxpayers in the country will determine the tax amount that they are supposed to pay from their cryptocurrency gains based on the value of the crypto asset at the time they sold it.
SARS is also determined to make sure that no one avoids paying taxes on their cryptocurrency gains. It plans to implement a system through which it will use off-chain data to track blockchain transactions and also determine the cryptocurrency wallet balances of traders in South Africa. The regulatory authority is currently working on developing the system and this will make it hard for South Africans in the crypto market to dodge taxes.