Crypto industry is on the rise in South Africa with many more players joining the party. According to data from Google trends, South Africans have shown an increasing interest in cryptocurrencies since the time of the “bitcoin boom.”
A new survey showed that 38% of South Africans wished they had invested in cryptos earlier and 71% were positive about cryptocurrencies saying that “you can make a lot of money with them.”
In February this year, the South African budget review shows that the volatile nature and uncertainty about the sustainability of cryptocurrencies could pose financial risks to the South African Income Tax System coupled with administration challenges from a VAT perspective.
However, new proposals have been made in the budget review requesting that income Tax and VAT laws should be amended. Thus, virtual currencies may soon be considered as financial services in compliance with the Value-added Tax (VAT) Act, according to the two new draft proposals by the National Treasury.
The proposals “Draft Taxation Laws Amendment Bill 2018 (TLAB) and Draft Tax Administration Laws Amendment Bill 2018 (TALAB)” are currently undergoing public consultations and the public is invited to give comments. After the public comment, it will then be formally discussed in the Parliament in October 2018.
Attempting to explain the proposal, Gerhard Badenhorst, director at law firm Cliffe Dekker Hofmeyr, noted that if the proposal to consider cryptocurrencies as financial services is accepted and passed into law, then all crypto-related activities will be exempted from VAT, in accordance with the provisions of section 12 (a) of the VAT Act.
In his words “If the crypto-currency transactions are exempt from VAT, then no VAT will, of course, be payable on the sale or supply of cryptocurrencies.”
Even if crypto trading income exceeds R1 million ($75,046) stipulated in VAT registration threshold, suppliers are not entitled to register for VAT neither will any VAT be deducted in any related activity.
Badenhorst further explained that there are implications that require consideration, saying:
“A VAT-registered person may, however, deduct the VAT charged by the supplier of the goods or services if the goods or services are acquired for the purpose of making taxable supplies.
Where a supplier of goods or services accepts cryptocurrency as payment for a supply of goods or services, the supplier must convert the value thereof into South African rand and must issue a tax invoice in rand to the recipient.”