Cryptocurrency is subject to all the tax and foreign exchange control regulations fiat currency is, speakers warned during a recent webinar hosted by the Institute of Information Technology Professionals South Africa (IITPSA) Blockchain special interest group in partnership with the Developer User Group.
Speaking during the webinar entitled “Understanding the shifting crypto regulatory landscape”, John Singh, ITPSA board vice-chair and Blockchain Special Interest Group chair, says: “Crypto enthusiasts believe they should have a fundamental right to own their crypto property. Governments print and control money, so even though people have the fiat money in their pockets, they don’t have complete ownership rights.
“In the case of crypto ownership, rights are inviolable and are guaranteed by blockchain and cryptography. Regulation is welcome and necessary to stop the cases of illegal activities being funded by crypto – but it should not violate the property rights of lawful citizens.
Taxes and crypto
Candice Mesk, director of the Developer User Group, co-organiser of DevConf and a Blockchain enthusiast, notes: “There is no tax implication for buying and holding crypto on a local digital exchange. As long as it’s not being disposed of – for example, exchanging it for another asset, transferring it to someone else, or spending it. The crunch comes when you are disposing of it.”
She explains: “The first in first out principle is applied, so the oldest crypto asset will be disposed of first. A gain or loss is calculated based on what the oldest token in your wallet was worth when you bought it and its value when sold.”
Mesk says that crypto tax is calculated differently, depending on the intention of the user.
“For typical investors, tax is calculated on capital gains and losses – but revenue earned is taxed at the normal income tax rate. If you are paid in crypto you need to declare that as income. When trading regularly on an exchange, yields may also be considered revenue or income. All earnings need to be declared appropriately and are taxable. SARS expects us all to be responsible citizens about it.”
She recommends using a crypto tax calculator to understand crypto tax implications: “Use a calculator such as Koinly which can be integrated with many wallets and exchanges – including Luno – to help you generate your tax reports.”
Crypto and exchange controls
On the question of crypto and foreign exchange controls, Mesk says: “South African Exchange Control regulations date back to the early 1960s and need to come a long way to give robust guidance around crypto. There is a discretionary allowance impact when buying or moving crypto overseas.
Currently, a South African resident can’t simply send crypto to a wallet overseas – legally, you need to cash out the crypto assets into Rand, then convert them to Dollars, Euros or other currency, and send that overseas and purchase crypto.
“This does impact your discretionary allowance,” Mesk explains. “In future, the way we think it’s going is that moving crypto out of South Africa should be considered externalisation of capital – and we expect guidelines to make this clear, as well as reporting mechanisms.”
Crypto is potentially disruptive to traditional cross-border remittance solutions, she adds. “Services like Yellow Card and Kotani Pay are seeing phenomenal growth and are licenced in some jurisdictions – so they do fall under regulatory supervision which gives the assurance that their Know Your Customer (KYC) and Anti Money Laundering (AML) protocols are in order. Crypto is just opening another window for cross-border remittance.”
ETFs for ordinary investors
Mesk also elaborates on Exchange Traded Funds (ETFs) for crypto investors: “ETFs are very popular with institutional investors, but ordinary investors can access these too,” she says.
ETFs bring a certain amount of confidence and stability to the asset class.
Companies like BlackRock offering spot crypto ETFs are regulated – many of them were traditional asset managers first and crypto is just a part of their bigger portfolio.
“It should be noted that as an investor, you don’t have direct access to those crypto assets – an asset manager is taking responsibility for managing those assets,” Mesk says.
As cryptocurrency becomes increasingly mainstream, Mesk recommends that individuals learn more by undergoing crypto and blockchain training.
“Courses and information are available online and through local educational institutions,” she says.