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Decrypting the law: Proposed VAT Act amendments affecting cryptocurrencies
- 01 August 2018
- VAT
- Gerhard Badenhorst
Important:
This article is based on tax law for the tax year ending 28 February 2019.
Author: Gerhard Badenhorst (Cliffe Dekker Hofmeyr)
The former Minister of Finance stated in his Budget Review on 21 February 2018 that the income tax and value-added tax (VAT) treatment of cryptocurrencies are addressed by existing provisions in the South African tax law. Regarding VAT, it was recognised that the supply of cryptocurrencies can cause administrative difficulties in the VAT system; and to address these issues, it was proposed that the VAT legislation be amended. SARS in the interim stated on its website that it would not require persons to register for VAT for purposes of the supply of cryptocurrencies, pending policy clarity in this regard.
If one considers the provisions of the Value Added Tax Act, No 89 of 1991 (VAT Act), it defines ‘money’ as any coins or paper currency issued by the South African Reserve Bank (SARB) as a legal tender, or any coin or paper currency of any country other than South Africa which is used or circulated as currency. A cryptocurrency is not issued by the SARB or by any other country, and it is therefore not ‘money’ as defined.
The question is then whether a cryptocurrency comprises ‘goods’ or ‘services’ for VAT purposes. The term ‘goods’ is defined in the VAT Act to mean corporeal movable things. Accordingly, cryptocurrency does not comprise ‘goods’ for VAT purposes. The term ‘services’ is, however, widely defined in the VAT Act to include the granting or assignment of any right or the making available of any facility or advantage. In the absence of any exclusion or exemption in the VAT Act, a cryptocurrency will most probably fall within the ambit of the definition of a ‘service’ for VAT purposes.
It seems that National Treasury concurs with the view that cryptocurrency transactions comprise the supply of a ‘service’ for VAT purposes. It has therefore now proposed in the draft Taxation Laws Amendment Bill, 2018, that the activities involving the issue, acquisition, collection, buying or selling or transfer of ownership of a cryptocurrency are deemed to be ‘financial services’ as defined in s2 of the VAT Act.
Please click here to read more.
This article first appeared on cliffedekkerhofmeyr.com.