Cryptocurrency regulation

Cryptocurrency regulation in South Africa – A Proactive Government on Blockchain

Hi, This is Qadir A.K, Crypto lover, and Research Columnist. 

Moving on to the 11th section of my writing series, writing series, ‘The Cryptocurrency Breakthrough 2020 – Synopsis 11’. Cryptocurrency regulation in South Africa.

Cryptocurrencies specifically Bitcoin are apparently a very popular medium of exchange among the majority of the individuals in domestic and cross borders. However, the South African Reserve Bank (SARB) has not officially recognized them as a legal tender in the country. 

Some economists say cryptocurrencies as a disruptive innovation which could blossom on the African Continent.

Is the South African Government in Favour of Cryptos?

Although the South Africa government has not yet considered cryptocurrencies as legal tenders, the government is proactive in streamlining the cryptocurrencies and it’s activities. They are very well aware of the fact that many Africans have invested and continue to invest in them being aware of all possible risks.

And therefore South African Finance Minister Tito Mboweni has announced the establishment of a Cryptocurrency Assets Regulatory crypto task force.. 

This crypto task force will be responsible for carrying out research on the potential implementations of the Blockchain technology within the country. The group includes the representatives from the Financial Intelligence Centre, the Treasury, the Financial Sector Conduct Authority, the Reserve Bank and the SA Revenue Service(SARS).

“It is anticipated that, following broad industry comment and participation, the crypto assets regulatory working group will be ready to release a final research paper on the subject during the course of 2019,” said Mboweni. 

The working group mainly analysed two crypto use cases: Crypto trading and the use of cryptocurrencies for payments. The detailed consultation paper of the working group can be assessed HERE.

Crypto Regulations in South Africa

Way back in 2014, South Africa Reserve Bank (SARB) confirmed its stand on virtual currencies that it does not recognize them as legal tenders and SARB has the sole authority to issue a legal tender. Also, warned Cryptocurrency users on Trade and using digital money  

They further confirmed again the same in 2017 that virtual currency is not considered as ‘currency’ in South Africa.

The Financial Sector Conduct Authority (FSCA) is the regulatory body responsible for monitoring cryptocurrencies in South Africa collaboration with South Africa Reserve Bank (SARB). 

The first step taken by the government in virtue to regulate cryptocurrencies was to change the status of cryptocurrencies from ‘digital tokens’ to ‘hobbyist financial instruments’. 

The three main reason, the government is concerned regarding cryptocurrencies could be,

  • Unaware of the risks involved in cryptocurrency trading.
  • The regulatory framework needs to be developed from scratch.
  • As the cryptocurrency trading supports anonymous transactions, the possibility of money laundering or any illegal activities increases.

Later in January 2019, SARB came up with the limited regulation with the cryptocurrencies where-in crypto exchanges and wallet providers would have to register with the regulators under new rules. 

However, the central bank maintained its stand on the cryptocurrencies that they should remain without legal tender status and should not be recognized as electronic money.

Recently, in April 2020, South Africa’s top regulators proposed 30 new rules to regulate cryptocurrencies. The government is all set to impose more strict regulations on the cryptocurrencies.

Laws Implemented on Cryptocurrencies

The crypto asset service providers that include exchanges and custodial service providers are obliged to register under the Financial Intelligence Centre Act of 2001 (FICA). The act requires the service providers to comply with anti-money laundering and counter financing of terrorism requirements. 

Post the Crypto Laws released by SARB in Jan 2019 , The South African Central Bank  recently announced it is set to introduce new laws to prevent cryptocurrency from being used to evade currency controls. The new laws would place limits on the amount of local currency sent outside the country,

Despite of All the Strict Regulations and Laws South African crypto users have been holding the market high. 

For Instance, Raise in African Crypto Firm’s Capital Despite Strict Regulatory, the big news was when we found Nigeria and Ghana Named Among Leading Cryptocurrency Market Globally. There was technological Implementation like Online Retailer Pick n Pay to accept Bitcoin and Bank of Ghana to Launch Digital Currency: e-cedi

It’s Impressive to See how the South African Government and Crowd being adopting and Implementing Blockchain technology. The Future seems to be Sparkling with Gold and Cryptocurrency together. 

Taxation and Mining

Taxes on Cryptos and its activities

South African Revenue Service (SARS), the country’s tax authority has not exempted the crypto traders and miners from paying taxes. The existing tax rules cover cryptocurrencies too where-in the taxpayers are required to declare cryptocurrency gains or losses as part of their taxable income. 

The cryptocurrencies are subject to either Income Tax or Capital Gains tax. The given below are the different scenarios when the cryptocurrencies could be taxed.

  • Cryptocurrency obtained through successful completion of mining
  • Exchanging the fiat currency to cryptocurrency or vice versa.
  • Cryptocurrencies indulged in barter transactions that’s nothing but used as a mode of payment.

Income tax is applied on the cryptocurrencies when you earn the cryptocurrencies in exchange of a goods or services rendered or if you are a day trader.

On the other hand, Capital Gain Tax is applied when you bought and held the cryptocurrency for a very long period of time, say more than 3 years and exchange to fiat currency.

Mining

The economy of South Africa is strong compared to that of other African countries. Thus making them an easy task to buy mining equipment. The government’s positive approach to blockchain technology created a favourable environment for mining.

The cryptocurrencies earned after the successful mining of cryptocurrency is considered as taxable income and liable to pay taxes as per the existing Income tax of the country.

Series of Events

19-04-2020:- The South African Reserve Bank proposes 30 rules to regulate cryptocurrencies. These recommendations do comply with FATF standards.

09-04-2020:- Cardano partners with South African Blockchain Alliance (SANBA) to promote blockchain use in South Africa. 

15-03-2020:- Binance announced fiat support of $1 million in Blockchain Education to South Africa.

19-11-2019:- One of the biggest banks in South Africa FNB shuts down the bank accounts of the cryptocurrency exchanges.

16-01-2019:- The South African Reserve Bank released a Consultation Paper to enforce new rules on the cryptocurrency, their assets and the ATM’s.

09-04-2018:- SARS stated that cryptocurrencies would be covered under the normal Income tax rule. However, the taxpayers are subjected to declare their crypto gains or losses in their taxable income. It released a circular on this.

13-02-2018:- SARB announced its new Fintech programme to track and analyse fintech developments.

26-07-2017:- The South African town of Orania to launch its own digital currency e-‘ora’ which will be printed Orania’s Chamber of Commerce and distributed through its central bank.

23-08-2016:- In a Speech at the cybersecurity conference held in Johannesburg, the governor of the Central Bank, Lesetja Kganyago indicated that the government is exploring the possible use of the blockchain technology and interested in the implementation of the technology.

20-02-2014:- The South African Central Bank warned against the risks involved in cryptocurrencies and issued a Position Paper on Virtual Currencies. 

Concluding Thought

South Africa undoubtedly provides a huge opportunity for blockchain companies and cryptocurrencies. The government is very eager to implement blockchain technology but has made tougher rules for cryptocurrencies.

It would be very interesting to see the changes in the cryptocurrency market in South Africa and also around the world aftermath, the new law is enforced.

Also Read: Top Ten Crypto Exchanges of Africa

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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