The South African Revenue Service and other agencies are looking to create a new legal framework and tackle the country’s crypto taxation policies.
According to a report from BusinessDay, a South African media outlet, South Africa’s finance minister, Tito Mboweni, has announced the establishment of a crypto assets regulatory working group. The group will be made up of representatives from various government agencies, including the Financial Intelligence Centre, the Financial Sector Conduct Authority, the Treasury, the South African Reserve Bank (SARB), and the South African Revenue Service (Sars).
Mboweni explained that the group was created to research and develop a regulatory framework for cryptocurrencies; he cited several issues he hopes the regulatory framework will address. For example, Sars struggles to accommodate for cryptocurrency gains and losses on tax return forms. The minister noted that, currently, Sars is unable to accurately trace capital profits on cryptocurrencies because tax return forms do not ask taxpayers to declare profits.
For now, some taxpayers opt to make declarations regarding cryptocurrency trades under “other trade income” or “other trade loss” on the tax forms, and then Sars applies standard income tax rules. But the tax code wasn’t written with cryptocurrency in mind.
According to the report, South Africa’s Taxation Laws Amendment Bill of 2018 included proposed amendments regarding cryptocurrency gains and losses taxation. The amendments would treat cryptocurrencies as value-added tax – a tax on the value increase of goods and services at each stage of production or distribution – rather than capital gains. The amendments would also ensure that losses on cryptocurrencies can only be offset against the taxpayer’s profits.
South Africa’s new regulatory group is one of many responses to crypto growing pains worldwide. Just this week, New York set up its own cryptocurrency and blockchain research task force, and within the last month the UK has begun the task of setting up crypto taxation rules and regulations, while Denmark has started investigating past taxes owed.
In June 2018, ETHNews covered SARB’s Project Khokha, an Ethereum blockchain-based pilot built through a partnership with ConsenSys. Project Khokha reportedly showed that distributed ledger technology was able to process an entire day’s worth of the South African payments system’s volume in two hours “with full confidentiality of transactions and settlement finality.”
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