Law Firm: South Africa’s Draft Tax Law Could Affect Cryptocurrency Use

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A South African law firm has published a short essay on proposed tax legislation for cryptocurrency in the country. Cox Yeats Attorneys, a Durban-based firm, argues that the Taxation Laws Amendment Bill, published by the National Treasury in July, will be bad for the digital asset industry, according to local media reports.

Law Would ‘Significantly Deter’ Crypto Use

South Africa’s National Treasury published the draft virtual currency law on July 16 in response to rising public interest in bitcoin and other cryptocurrencies. The bill is the country’s first attempt to regulate the use of crypto assets, which have been largely unregulated until now. It includes proposed changes to both the Income Tax Act and the Value Added Tax (VAT) Act for cryptocurrency taxation purposes.

Law Firm: South Africa's Draft Tax Law Could Affect Cryptocurrency Use

“The amendments, if promulgated in their current form, will significantly deter the use of cryptocurrency in South Africa for both trading and investment purposes,” Wade Ogilvie, a partner at Cox Yeats Attorneys, wrote in an article that was originally published in The Sunday Tribune. Changes to the income tax law will define cryptocurrencies as “financial instruments,” he said. That will place them in the same category as loans, debts and common stocks.

Ogilvie said this could have “a ripple effect throughout” South African tax legislation. He cited Section 22 of the Income Tax Act, which “provides for the determination of the value of undisposed trading stock to be included in taxable income.” He also pointed to another section of the same law that specifically excludes financial instruments for this purpose.

Law Firm: South Africa's Draft Tax Law Could Affect Cryptocurrency Use
Wade Ogilvie
“(This) means that those who trade in cryptocurrency may not benefit from valuing their undisposed cryptocurrency using the valuation method contemplated in Section 22,” Ogilvie said.

“The amendment may also stifle investment in fintech companies in South Africa as section 11D of the Income Tax Act, which provides an allowance for companies that invest in research and development in South Africa, specifically excludes the creation or development of financial instruments. This would include companies who mine or develop cryptocurrencies.”

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