Charging taxes on profits made from trading or investing in cryptocurrencies has become a trend. It came into full force following the inability of the government to fully restrict cryptocurrency-related transactions in their respective countries. The proliferation of Peer-to-Peer (P2P), especially on crypto exchanges, has helped cryptocurrency enthusiasts bypass these restrictions.
In South Africa, the decision of the government to have the final say in crypto-related transactions is taking another dimension with the introduction of SA crypto laws. Full-scale regulations of the country’s crypto market are expected before the end of 2022.
This article will show you the actual position of things for cryptocurrency investors in South Africa and what the taxation policies mean for the SA crypto market.
A Background to Crypto Tax Laws in SA: Cryptocurrency As A Finance Service
The South African government is already moving to regulate the crypto market, starting with the designation of cryptocurrencies as “financial services.” According to Michalsons, the designation as a financial service will be added to the Conduct of Financial Institutions Bill (“CoFi Bill”), through which it will be further added in the Financial Sector Regulation Act (FSRA).
South Africa’s Cryptocurrency Tax Laws and Regulations: What You Need to Know
What are you to expect from the regulation of the cryptocurrency market? Will it come into full force before the end of the year? Will you pay crypto tax, and if you will, just how much will you pay?
These are questions on the mind of cryptocurrency users within the country. The South African Revenue Service (SARS) has confirmed that income tax rules will be applied to holders of cryptocurrencies. According to the income tax rules, the tax will only be used if the taxpayer received cryptocurrencies and made profits from the same. It doesn’t matter if the person received it as a gift or bought the same from a cryptocurrency exchange.
Also, the crypto tax rules apply to taxpayers who hold crypto assets with the intent of making a capital gain. The same applies to holders who sold off their crypto assets. For example, a South African who bought or received bitcoin when the price was at $29k and sold it when it peaked at $65k has made a capital gain because the value or amount of money used to buy the coin has appreciated. They are expected to pay tax for the profits made from the transaction.
On the flip side, the South African Revenue Service (SARS) submits that losses also form a part of the South Africa crypto tax rules. In that case, you can offer your crypto losses for recording, saving you from paying tax.
Why the South African Government is Interested in Regulating Crypto Transactions
Are you wondering why South Africa is becoming crypto tax compliant with new regulations? These are some of the reasons why the taxation policies are likely to see the light of day:
1. The Need to Stop Crypto Scams in South Africa
The era of Ponzi schemes is gradually giving way to scams in the cryptocurrency market. As widely reported in some dailies, billions of Rands (South Africa’s currency) have been lost to different cryptocurrency-related scams. ISS Africa estimates the scams to be well over $4 billion, and more are still likely to rear up in the next couple of months.
As one of the early adopters of cryptocurrencies in Africa, South Africa is trying so hard to prevent more of its citizens from falling victim to crypto scams. Hence, the market regulation allows the government to have control over crypto-related transactions in the country.
Without regulations, the government will refrain cryptocurrency exchanges from offering their services to South Africans.
2. Crypto as Alternative Investment
The South African government is also trying to establish the true position of cryptocurrencies like bitcoin as an “alternative investment.” This could go a long way to reduce the glamour of trading or investing in cryptocurrencies to make a regular income.
Also, by this measure, the government is clamping down on specific demographics who may be at the risk of losing all their life savings to crypto. South Africans who are either pensioners or below the legal age of 18 may not be permitted to engage in cryptocurrency transactions.
At the same time, investment schemes or investment companies in the country wouldn’t be permitted to trade or invest in crypto assets, as they are highly volatile.
IFWG’s Connection and the Position Paper that Started it All
The move to add cryptocurrency regulations to South Africa’s financial regulatory purview was initiated by the Intergovernmental Fintech Working Group (IFWG). The group published a “position paper” that, among many other things, highlighted the risks associated with cryptocurrency investments and how average South Africans may be exposed to those risks.
The position paper highlighted the need to regulate the crypto market in SA to reduce crypto-related scams, prevent further money laundering schemes and provide a well-regulated crypto financial market.
The group also called for measures to restrict the addition of crypto assets as securities and the importance of getting cryptocurrency service providers (trading platforms) registered with the Financial Intelligence Center (FIC).
Cryptocurrency Adoption in South Africa: How has it Been?
Analyst reports estimate the cryptocurrency adoption rate in the country at 15% of the total population. This was as of 2021. About 15% of cryptocurrency investors hold up to R10,000 worth of crypto, and about 3% of the population holds up to R50,000 cryptocurrency worth.
According to a recent case study published by Finder’s Cryptocurrency Adoption Index, about 11.3% of South Africa’s population invest in cryptocurrencies. This is closer to the 15.5% global adoption rate.
Critical factors for the adoption include the enthusiasm of the citizens, the publicity created by some failed cryptocurrency projects, and the appreciation of bitcoin in recent years.
How to Stay Crypto-Compliant in South Africa
To stay crypto-compliant, you must endeavour to declare both profits and losses made from crypto investments in SA. Although crypto exchanges in the country are yet to provide tax certificates to the users, it is expected that the crypto market regulation will bring about that practice.
That is why trading with a crypto compliant exchange such is an ideal choice.
Conclusion on South Africa’s Cryptocurrency Regulation
It’s been a long time coming to regulate the crypto market in South Africa. The dominance of cryptocurrency scams has led to the loss of billions of Rands and has also dwindled the little faith of some South Africans in cryptocurrencies.
With the regulatory policies and implementation of South Africa crypto tax rules underway, the market is likely going to be transparent and under heavy supervision. Quartz Africa reported that the South African cryptocurrency market is “forging a different part than the rest of Africa” and for no other reason than the recognition of cryptocurrencies as taxable assets.
As the taxation rules are set to be released for full implementation before the end of the year, seize this opportunity to learn how crypto works and evaluate whether it will be a good investment vehicle for you.
- Clinton Nwachukwu, Content Writer at Yellow Card