A minefield of taxes lies ahead for crypto asset transactions in South Africa, where a gain in selling Bitcoin and other cryptocurrencies is taxed as either revenue or capital.
It is according to Joon Chong, a partner and tax specialist at Webber Wentzel, the leading full-service law firm on the African continent.
Chong is an admitted attorney and a chartered certified accountant who regularly makes submissions to the South African Revenue Service (SARS) and National Treasury on draft tax bills and other practical tax issues.
She said taxes related to the disposal of crypto assets are in line with the same income tax rules that apply to the disposal of shares or unit trusts.
Taxes related to crypto trading is topical after the collapse of the Bitcoin and cryptocurrency market in 2022.
Investors who thought crypto trading was easy to make money will get another shock as SARS looks at how to tax crypto activities.
Work on new tax and financial regulatory laws that will apply to crypto assets has already begun, and the South African Reserve Bank (SARB) is taking the lead.
In a recent presentation, the deputy governor said that the SARB was busy with various workstreams, including a regulatory framework for crypto exchange platforms.
The framework will ensure compliance with anti-money laundering and countering the financing of terrorism measures, exchange control regulations, and tax laws.
The work related to cryptocurrencies is expected to take between 12 and 18 months to finalise.
Interestingly, the term crypto asset, not cryptocurrency, is used in South Africa as the regulatory framework moves towards uniformity. The definition is provided below.
A crypto asset is a digital representation of value that is not issued by a central bank but is traded, transferred and stored electronically by natural and legal persons for the purpose of payment, investment and other forms of utility, and applies cryptography techniques in the underlying technology.
The Income Tax Act 58 of 1962 (ITA) defines a financial instrument to include any crypto asset.
The ordinary meaning of crypto asset includes cryptocurrencies and non-currency assets such as non-fungible tokens, security tokens and utility tokens.
It encompasses all items stored on a distributed ledger on decentralised networks.
