Abstract:
Background
The emergence of cryptocurrency is one of the significant innovations of the Fourth Industrial
Revolution. Cryptocurrency is an interesting phenomenon as it was created to be an
independent, peer-to-peer payment system operating as an alternative to the traditional fiat
currency system. Currently, cryptocurrency is mainly used on a speculative basis as it does
not have legal tender status in most countries around the world. Cryptocurrency’s popularity
has grown at a tremendous rate over the recent years while limited guidance has been
issued to date regarding the taxation of cryptocurrency transactions both locally and globally.
The Organisation for Economic Co-operation and Development has acknowledged that
policymakers should attend to regulating cryptocurrency as a matter of importance. In South
Africa, cryptocurrency has been included in the financial instrument definition and classified
as an asset.
Main purpose of study
The aim of the study was to understand the appropriateness of the current tax classification
of cryptocurrency transactions in South Africa and to identify possible alternative
classifications for cryptocurrency transactions from the view of tax specialists.
Method
An open-ended questionnaire together with a thematic analysis were used as primary data
to evaluate the appropriateness of the current tax classification in South Africa. In addition,
secondary data was used to determine whether the current tax treatment in South Africa is
aligned with other jurisdictions and to make recommendations, if needed.
Results
The majority of participants to the open-ended questionnaire noted that the current
classification of cryptocurrency as assets in South Africa is appropriate. A few participants
indicated that additional guidance is required to clarify the application of the existing tax
principles to the taxation of cryptocurrency transactions. Other participants acknowledged
that the different types of cryptocurrency and the different stages in its life cycle drive the
tax treatment.
Conclusions
The classification of cryptocurrency as an asset is in line with other jurisdictions and as such
is deemed appropriate. Attention needs to be given to the different stages in the life cycle of
cryptocurrency as the asset has different characteristics in the various stages and as such
could require different tax treatment and tax principles. In addition, taxpayers’ intention with
their cryptocurrency holdings are of the utmost importance to ensure the classification as an
asset as opposed to trading stock is appropriate.
