Abstract
Even though the world of cryptocurrency is still relatively new and unexplored, it is constantly evolving, and regulators are struggling to keep up. By now, the average taxpayer is probably well aware of the existence of cryptocurrency and its potential to earn exponential gains. However, what is still unclear to most taxpayers and tax authorities alike is how cryptocurrency should be regulated from a tax point of view. This dissertation seeks to shed some light on the matter.
The research objective is to formulate an understanding of the areas of uncertainty in the taxation of cryptocurrency and provide suggestions on how these uncertainties can be effectively regulated from a tax point of view in order to avoid the loss of tax revenue in South Africa. The main objective is divided into two sub-objectives. The first is to understand the uncertainties in respect of the tax treatment of cryptocurrency and thereby formulate a set of criteria against which the tax legislation and/or guidance specific to cryptocurrency can be analysed. The set of criteria are linked to some of the fundamental principles of taxation to ensure that the criteria are aligned to the basic principles by which a taxation system should abide. The second objective is to analyse and compare the tax legislation and/or guidance relating to cryptocurrency in the USA, UK, Singapore and South Africa to investigate how other countries are dealing with the uncertainties and how South Africa compares.
The research objective was addressed through, firstly, a systematic review of research conducted by the Organisation for Economic Development and Cooperation (OECD) on cryptocurrency to identify uncertainties with respect to the tax treatment thereof. Secondly, a review of the primary legislation and guidance of the USA, UK, Singapore and South Africa was conducted to ascertain whether, and to what extent, these uncertainties are being addressed.
The results of the research show that none of the countries in scope have yet managed to fully address all the uncertainties identified in this dissertation, although the UK is very close. This is because the UK has the most comprehensive guidance of all the four
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countries, indicating that the more guidance that is available, the better the chance of avoiding a loss of tax revenue.
Regulation in South Africa, specifically tax regulation, is lagging a little as a result of the low level of usage and prevalence of cryptocurrency by its taxpayers. Areas in which SARS can begin making improvements are the following: (i) expand guidance to include the tax treatment of unique aspects of cryptocurrency, for example, mining, airdrops and forks; (ii) making provision for the simplified treatment of identical coins/tokens; (iii) providing guidelines in respect of record-keeping requirements for cryptocurrency transactions.
The world of cryptocurrency is constantly evolving, and future research could focus on new developments. Other areas for future research include research on the effect of cryptocurrency on taxes other than income tax, on countries other than the USA, UK, Singapore and South Africa, as well as the effect of cryptocurrency on international (cross-border) taxation.
Keywords: cryptocurrency, cryptoassets, taxation, tax legislation.