South Africa’s economy has been in trouble for a while now. The GDP of Africa’s most industrialised nation started off 2018 by contracting at its sharpest rate in nine years, and there’s little reason to believe things are going to improve much in the near future. That’s why consumer demand for a decentralised and stable monetary system in South Africa has reached sky-high levels – and fintechs are flocking to the country in order to meet that demand.
Blockchain-based cryptocurrencies are leading the call, and have found a natural home in South Africa. Over the course of the last year, the country has celebrated the initial token offering of its first-ever localised digital currency in the form of Project UBU, Bitcoin trading has hit record volumes and new crypto investment platforms like BitFund are popping up across Johannesburg.
According to Google Trends, South Africans search for information about Bitcoin online more than web users in any other country on the planet. Last year, one of the country’s biggest supermarket chains even piloted a Bitcoin POS project in Cape Town – and in May, the capital landed its first-ever ATM for cryptos. Cryptocurrencies are becoming more accessible than ever to buy, sell and trade in South Africa.
Yet as the consumer appetite for cypto trading continues to swell, the South African Revenue Service (SARS) has signalled a clampdown in recent weeks designed to redefine the way South Africans use digital currencies so they can be consistently taxed and monitored.
The government’s campaign to reel in South Africa’s flourishing crypto markets began in April, when SARS announced plans to apply normal income tax rules to all cryptocurrencies, eagerly pointing out to critics that the word “currency” isn’t actually defined in South African tax legislation.
As such, SARS decided cryptos should be treated as assets of an intangible nature, and that all taxpayers must henceforth declare any and all profits and losses accrued from digital transactions using cryptocurrencies. Failure to report those transactions will naturally be subject to nominal penalties with interest.
But last week, acting SARS commissioner Mark Kingon took that position a step further at a Johannesburg conference organised by the Institute of Internal Auditors. Kingon declared the South African government was not only ready to tax crypto transactions, but would now actively be searching for new ways to identify crypto traders in order to verify whether they’d been paying income tax on their digital trades.
He further explained that while SARS has the ability to identify traders, most South African traders are thought to use overseas accounts when transacting with cryptocurrencies so that the trades end up falling under outside jurisdictions. Bearing that in mind, Kingon has called for improved common reporting standards to ensure traders can be identified and referred to the appropriate domestic authorities wherever relevant.
Precisely how that firm stance will materialise into action in the months to come remains unclear.
Yet while South African tax authorities work to tighten the noose on crypto traders, fellow regulators across other jurisdictions appear to be less concerned about the tax burden on crypto traders. In May, Germany’s Federal Ministry of Finance announced it would not tax cryptocurrencies when they’re exchanged with euros, sales tax shouldn’t apply to crypto transactions and that small profits or long-term gains would be tax-exempt going forward.