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We have previously explored the notion of cryptocurrencies and the regulation thereof. A theme which has permeated the conversation and analysis by commentators is the disruptive nature of cryptocurrencies and the challenge of regulating same. In this article we shall recap the central tenets of cryptocurrencies and will examine two proposed regulatory interventions by the South African Treasury (“the treasury”).

Cryptocurrencies and Taxation

Cryptocurrencies are virtual currencies which use cryptography for security. In other words, cryptocurrencies are digital tokens akin to but not the same as national currencies (FIAT currency) insofar as they can be used to facilitate financial transactions, but are not a form of recognised legal tender in South Africa.

A leading motivation for the utilisation of this currency is that it is not regulated by a central authority. Consequently, users are able to remain anonymous.

As cryptocurrencies have become prominent globally, law enforcement entities have begun attempts at regulation. For instance, The South African Revenue Service (“SARS”) has recently issued a media statement indicating that normal tax rules apply to the transactions involving cryptocurrencies and that the onus to declare taxable revenue or capital gains lie with the taxpayer.

Treasury’s Proposals

The treasury has recently released a Draft Explanatory Memorandum on the Taxation Laws Amendment Bill. The following proposals are pertinent in relation to cryptocurrency.

A Financial Instrument

The treasury has proposed the inclusion of cryptocurrencies in the definition of “financial instrument” in s1 of the Income Tax Act, 1962.

The inclusion of cryptocurrency in this definition would confirm that cryptocurrencies are akin to a ‘bond, debenture or share’ and thus the jurisprudence dealing with these instruments would be applicable to cryptocurrency transactions.

This inclusion is important for certainty, particularly in ascertaining whether income generated from cryptocurrency would be deemed to be revenue or capital and tax implications therefor.

Value-Added Tax (“VAT”)

SARS had previously stated that the VAT treatment of cryptocurrencies would be reviewed and until such time taxpayers would not be required to register as tax vendors.

The treasury has given guidance of their intent by proposing that the “issue, acquisition, collection, buying or selling or transfer of any cryptocurrency” be added to the list of financial services listed under s 2 of the Value-Added Tax Act, 1991 (‘The VAT Act’).

The effect of this inclusion would equate to the exemption of cryptocurrency from VAT in terms of s 12 of the VAT Act.


It is important to note that the treasury is these amendments are merely a proposal, and that at present are not enforceable. Notwithstanding their recommendatory status, the proposed amendments are indicative of the likely legislative interventions to the cryptocurrency market, and exemplify. a growing awareness as to the scope and prevalence of such transactions.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

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