The South African Reserve Bank (SARB) plans to introduce regulations for cryptocurrency within the next 12 to 18 months.
According to Anthony Da Ressureica, an investment Analyst at Revix, SA can look forward to a progressive regulatory framework that will facilitate potential increase in capital flow into the country as investors take comfort that their assets are protected.
Da Ressureica argues that a regulated crypto environment will likely drive increased overall adoption of cryptocurrency as investors become more educated and institutions look to broaden their investment spectrum.
But investors should beware – with regulation comes taxation, and with tax season upon us, many are beginning to wonder how the South African Revenue Service (SARS) is planning to tax cryptocurrency.
“South African taxpayers have from 1 July to 24 October 2022 to declare their cryptocurrency gains or losses in line with tax filing season. But with little clarity on how best to manage crypto-related affairs and foreseeably an obligation for platforms to place and pass relevant information directly to SARS’ hands, it’s easy to understand why some investors might be getting anxious”, Da Ressureica says.
The first thing to keep in mind is that SARS does not classify cryptocurrency as an actual currency, but rather as an intangible asset. This means that all crypto transactions will be taxed according to the existing South African tax laws.
Tax landscape in South Africa
Consequently, cryptocurrency gains will be taxed based on capital gains tax principles or as revenue transactions; in other words, it will be treated as ordinary income, such as a salary. But this will be guided by an investor’s situation and intention to purchase cryptocurrency in the first place, Da Ressureica argues.
While there is currently no regulation or requirement for investment management firms that trade in cryptocurrency to share investors’ information with SARS, this could change soon. Investors are responsible for correctly reporting all of their crypto gains to SARS.
“But a word of warning, there is no shortcut approach to tax, and cryptocurrency is not an area where this would be acceptable. How SARS is going to categorise a hard-fork, airdrop, staking reward, or “interest” on a crypto-loan begs specific clarification (alongside the more “vanilla” swapping and selling transactions). Until that happens, investors may find themselves in a bit of a quandary.“
Da Ressureica says that investors should also know that SARS has its sights set firmly on cryptocurrency transactions as an additional avenue for revenue collection. The revenue service has drastically increased its reach in the digital realm, having allocated a further R3 billion towards improving its technological and information-gathering infrastructure.
Help is at hand
“Getting this right may seem somewhat daunting, but there is no need to stress. Through a partnership with Tax Consulting South Africa (TCSA), we have created and launched Revix Tax - a solution that enables investors to easily become crypto tax compliant without all the worries of calculating gains across loads of different exchanges and wallets.”
“As a leading tax consulting, consultation and compliance provider, TCSA equips South African taxpayers with the correct advice when dealing with their crypto asset-related tax queries. It is a company at the forefront of regulatory tax compliance and a leading voice in the tax regulatory and compliance space.”
“The digital assets industry is evolving, and it will be critical for governments and investors alike, to overcome tax ambiguity and drive tax compliance. It just doesn’t have to be daunting”, Da Ressureica concludes.
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