The South African Revenue Service (SARS) has issued an official statement on the tax treatment of cryptocurrencies in the country.

The SARS said that it does not regard cryptocurrencies as a currency for income tax purposes or Capital Gains Tax (CGT), but as “assets of an intangible nature.”

In its official release, the agency said that it “will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income. The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”

It further explained that either the income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”, or such gains may be regarded as capital in nature, under the Act for taxation under the CGT paradigm. Whether accrual or receipt is revenue or capital in nature is tested under existing jurisprudence, the SARS said.

Furthermore, it clarified that gains or losses relating to cryptocurrencies can be categorised into three types of scenarios, each of which potentially would lead to distinct tax consequences:

1. In case of successful “mining,” the SARS said that it would give rise to an immediate accrual or receipt and until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realized through either a normal cash transaction or a barter transaction.
2. When investors exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges or through private transactions, such transactions would be considered as normal cash transaction.
3. When goods or services are exchanged for cryptocurrencies, such transactions would be barter transactions and normal barter transaction rules would apply.

Regarding the Value-Added Tax (VAT) treatment of cryptocurrency, the revenue service said:

“The 2018 annual budget review indicates that the VAT treatment of cryptocurrencies will be reviewed. Pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies.”