Jashwin Baijoo – Cryptocurrency taxation

Taxation and value creation in a digital economy:

Cryptocurrency - fact or fable?

The current speculation around the taxation of cryptocurrency in South Africa is something that keeps many South Africans up at night. even though the South African Revenue Service (SARS) has issued some basic guidance on crypto assets, being digital representations of value, and their underlying block chain technologies, there is still much uncertainty afoot.

The Crypto Conundrum

Currently, the most prevalent question of every crypto asset holder’s mind, is how SARS will make a determination on the value creation in the digital economy, and how will this impact the classification of cryptocurrency i.e. Is it an asset or revenue in the hands of the holder? This classification should, in the ordinary course, follow the ‘fruit versus tree’ analogy as set out in the case of Visser v CIR SATC 271, but then what of the staking of cryptocurrency, or arbitrage trading? With so many variables in play, the taxation of cryptocurrency, even though fact, may have some facets of a fable in its application.

How value creation in a digital economy impacts taxation of cryptocurrency

For anything to be subject to taxation, there must be a value upon which the taxation is levied. When it comes to a wild card like cryptocurrency, the hardest part still may be obtaining this valuation, which, though directly proportional to supply and demand, consists of a multitude of CSVs, over any amount of time, as the time of taxation is only upon disposal. In order to even attempt to comprehend the above, and its impact of value creation in a digital market, we must first go back to basics, before delving into the complexities of crypto-taxation.

Jashwin Baijoo