The efficacy of anti-avoidance provisions and control mechanisms in the Tax Administration Act 28 of 2011 and Income Tax Act 58 of 1962 in relation to the nature and utilisation of crypto currencies in the current economic culture

Abstract

This study aims to evaluate the existing anti-avoidance provisions contained in the Tax Administration Act No 28 of 2011 and Income Tax Act 58 of 1962 in relation to cryptocurrencies. The purpose is to evaluate whether the existing anti-avoidance provisions provide adequate means to identify and regulate the use of cryptocurrencies to prevent tax evasion. Virtual currency is an anonymous and intangible fund which consists of various forms such as centralised and decentralised virtual currency. The technology used to trade cryptocurrencies is called blockchain. This technology requires the users of the cryptocurrencies to verify the transactions which result in an authenticated and trusted transaction. In this study, the tax regulatory frameworks of cryptocurrencies in the United States of America and Canada are discussed. These countries incorporate two very different approaches in respect of the reporting duties in their respective tax legislation frameworks in an effort to prevent tax evasion. The United States of America incorporated their Currency and Foreign Transactions Reporting Act to regulate cryptocurrencies, whilst Canada introduced the reporting duty in their Income Tax Act.2 The existing anti-avoidance provisions in the South African Tax Administration Act and Income Tax Act are examined against the backdrop provided in the study of the regulatory frameworks of the United States of America and Canada. The aim is to determine whether the anti-avoidance provisions in South Africa are sufficient to prevent tax evasion and avoidance.3 The premise is that the existing anti-avoidance provisions in the South African legislative framework are insufficient and that a need to incorporate reporting duties, similar to those that can be found in the Financial Intelligence Centre Act 38 of 2001, exist.4 The new proposed tax amendment bill will also be considered to determine whether it adequately addresses the shortfalls in the current tax legislative framework in relation to cryptocurrencies.5 It was concluded that the existing anti-avoidance provisions are insufficient to adequately prevent tax evasion in respect of cryptocurrencies. It is suggested that the South African authorities incorporate a general reporting duty in respect of cryptocurrencies in one of two ways.6 The first manner to facilitate this reporting duty is to incorporate it in tax regulatory framework. In the alternative, a multi-legislative approach must be considered by amending the Financial Intelligence Centre Act, by broadening its scope of application, to include transactions related to cryptocurrency to prevent tax evasion and tax avoidance.