Bitcoin is a virtual crypto-currency that exists solely in electronic form.1 Bitcoin was first launched in 2009 by Satoshi Nakamoto, which is an alias for a programmer or group of programmers.2 Bitcoin is defined as ?a digital, decentralized, partially anonymous currency, not backed by any government or other legal entity, and not redeemable for gold or other commodity?.3
Virtual currency is a type of fund used and accepted in a virtual or online community.4
Generally Bitcoin has been and is visible in South Africa (?SA?). It is more apparent in Cape Town.5 The first commercial conference on Bitcoin was held in Cape Town on April 20156 and BitHub, a virtual currency hub and incubator, was launched by the Cape Innovation and Technology Initiative in June 2015.7 On 7 September 2015, BitHub had a series of education Bitcoin courses which provided students with basic understanding of Bitcoin.8
The use of Bitcoins as a medium of exchange is not yet widespread in SA, however, it has been noted that this industry is growing at a fast rate as several online retailers are now accepting Bitcoins as a means of payment for goods and services, for example Takealot.com.9 SA has already installed its first Bitcoin vending machine, situated in Kyalami, north of Johannesburg, to give users the ability to get Bitcoins in exchange for rand.10
South African authorities have been silent on how bitcoin transactions should be taxed and even regulated. Research on this matter is relatively limited in South Africa. Studies are thus needed and are relevant to address the South African taxation implications of bitcoin exchange transactions as countries such as Australia and the USA have already issued guidelines to taxpayers in this regard.
The primary research objective of this study was to comparatively explore how Bitcoins should be classified in SA from a tax perspective. A comparative study was therefore performed to understand the current tax position in SA with regards to the classification of Bitcoins either as an asset or currency for Bitcoin transactions that may result in taxable income.
The research has limitations in that it did not look at cross-border tax evasion, collection of taxes, permanent establishment rules and the enforcement of taxes on Bitcoin transactions. Tax legislation is vast in SA and therefore every type of transaction could not be analysed due to the extensive nature of tax.
It was found that the current SA legislation does make provision for the classification of Bitcoin. However, it is suggested that SA authorities amend certain legislative requirements to cater for Bitcoin, as well as issue appropriate guidelines for the treatment of Bitcoin transactions, as was done in the U.S. and Australia.
Mini Dissertation (LLM)--University of Pretoria, 2016.