South Africa Revenue Service (SARS) announced plans to introduce cryptocurrency taxes earlier this year, in April. Now, it would seem that they managed to come up with a draft that would do just that.
Cryptos subjected to taxation
Back in April, when SARS first came up with the idea of taxing cryptocurrencies, it released a statement that said that cryptos are seen as intangible assets. As such, they should be subjected to income tax. The statement read that the word ‘currency’ is not exactly defined in the Income Tax Act.
Since the cryptocurrencies are not an official tender in South Africa, nor are they widely used in the country, they are not regarded as currencies that would be subjected to income tax purposes, or CGT (Capital Gains Tax). All that cryptos are seen as by SARS is an intangible asset.
Contrary to expectations, the citizens of South Africa actually welcomed the decision to subject cryptos to their own kind of taxation. While this would mean that the citizens have to pay in order to legally be able to hold and use cryptos, the move would also assure that the government is supporting their use. This would be almost an exact opposite of what the rest of African countries are doing regarding the digital coins.
So, finally, SARS proposed a draft that would regulate and significantly affect cryptos, and their treatment in the entire country. The proposal would continue to treat digital currencies as assets of intangible nature and would continue to subject them to income tax. Crypto holders would have to reveal their profits and losses when they file reports regarding their taxable income.
VAT won’t be applied, only regular tax laws
Additionally, the draft also includes the treatment of VAT (Value-Added Tax). This is necessary to include since the transactions of cryptos can be seen as a service. According to SARS, cryptos will be seen and treated as an exempt financial service, which is why VAT will not be applied.
Their statement reads that no VAT will be levied on cryptos, but the normal taxes will be applied since the cryptos are seen as intangible assets. All taxpayers affected by this decision will have to precisely declare their gains or losses in their crypto dealings, and pay relevant taxes.
Following up on its proposal in April, SARS declared that new tax rules for cryptos will not be created. However, old ones will still be fully applied, meaning that crypto users will be fully obliged to report their gains and losses as usual.