Legality of Cryptocurrency in South Africa

The Legality of Cryptocurrency in South Africa

Trading cryptocurrency in South Africa is not illegal provided the traders are ready to pay taxes on the profit made from such trades. That on its own is most likely to make the country the pacesetters of digital assets in Africa.

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But crypto community and stakeholders in blockchain technology in the former apartheid country are waiting for formal laws and regulations as the country’s Department of National Treasury promised in the South Africa Budget 2022 Review that public consultations on crypto in the country would be finalised by April 2022.

We’re waiting!

Has South Africa Legalised Cryptocurrency?

But before the authority concludes its findings, it seems that the country has realised that banning cryptocurrency in South Africa and restricting trading of bitcoin or other cryptos isn’t the way to out and would not in any way provide any solution.

Rather, the crypto ‘black market’ would be boosted as in the case of Nigeria. The Central Bank of Nigeria’s crypto restrictions has not yielded any result, rather crypto is booming in Nigeria despite the rigid restrictions

Apart from that, revenues Africa’s acclaimed biggest economy should have generated from taxes from crypto trades are lost to the peer-to-peer exchanges in Nigeria

The brains behind the invention of bitcoin, the leader of cryptocurrencies, and the technology that powered it, designed it to ensure the anonymity of buyers and sellers is protected.

But concerns over the negative use of crypto have pushed countries around the world, including the US, the United Kingdom, and Australia among others to put in measures.

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The measures were not only to safeguard the savings of their citizens but also to ensure the safety of their territory against terrorism financing through the use of cryptos is protected.

So, definitely, South Africa will formally legalise the trading of crypto assets because of the inherent economic benefits to the country.

The South African Reserve Bank, the country’s apex bank, have also been consulting and investigating how it could tap into Central Bank Digital Currency. The CBDC is similar to Nigeria’s eNaira, which seemingly looked like an abandoned project.

This is part of the country’s dynamism in digital assets as the world continues to move from analogue to digital.

Cryptocurrency Tax in South Africa

Initially, during the early use of bitcoin, Ethereum and other coins, the SA authority frowned at the use of crypto.

In December 2014, the Reserve Bank of South Africa publicly stated that virtual currencies had “no legal status or regulatory framework”.

And later, the South African Revenue Service classified bitcoin as an intangible asset which qualified it to be taxed, thereby making it mandatory for crypto traders to remit taxes on their trades.

In its 2022 budget review, the National Treasury of South Africa says

“The Reserve Bank continues to explore the policy and regulatory implications of digitalisation in financial markets.

“Following the review of a wholesale digital central bank currency or digital cash, the second phase of this project explores digital financial assets based on distributed ledger technology and the use of digital money to settle payments.

“It highlights the potential impact of this technology and digitalisation on financial markets and clarifies the relevant operational, legal and policy questions around a potential change. The project findings are expected to be released in April 2022.”

Budget Review 2022 South Africa

The interest of South Africans in Cryptocurrency

Between 2020/2021, a cryptocurrency research firm, Crypto Head, in a report subtitled, “Countries where crypto interest is rising the quickest”, out of 201 countries under the review, South Africa prominently occupied the 83rd position.

It is also interesting to note that out of the 47 African countries where crypto interest is growing, South Africa came third on the continent, after Seychelles and Mauritius who came second and first respectively.

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South Africa had 206,800 crypto annual searches. It also had 3,468 searches per 100,000 people. The number is expected to have gone up more than a year after the publication.

The Need For Crypto Regulation in SA

The above findings show that the interest of South Africans is growing in cryptocurrency rapidly beyond the government’s expectations. The best would be to actively regulate the activities of the crypto community in the country.

In our attempt to check the “The 2014 Virtual Currency Position Paper in South Africa”, we discovered that the document is no longer accessible for public consumption.

Does it mean South Africa is rescinding its position on restrictions on cryptocurrency?

It’s difficult to answer, but it shows that the country is most likely going to come up with a framework that would accommodate buyers and sellers of the crypto assets.

Some time ago, Luno crypto platform general manager for South Africa, Marius Reitz, stated that credible crypto players in the country would welcome the regulation, “regulation is a vital part of the cryptocurrency ecosystem,” CoinTelegraph quoted him as saying.

Benefits of Regulating Cryptocurrency in South Africa

1) It’s obvious that South African cryptocurrency regulation will make it easier to distinguish between licensed and unlicensed crypto service providers

2) It will reduce the instances of black market trading among crypto traders. Today, there are more than 10 crypto exchanges in South Africa that support the local currency.

3) It will protect both the consumer and South Africa

4) It will enable the crypto owners to equip themselves with the correct information to protect their assets from theft.

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5) It will afford the authority to rake in millions of Rand in revenue that could have passed through the backdoor to the unregistered exchanges in the country.

As per the legality of cryptocurrency in South Africa which relied on the Intergovernmental Fintech Working Group  (IFWG) position paper on crypto assets, three regulations are expected to guide the trading public.

They are:

1) Crypto asset service providers will be treated as accountable institutions within the Financial Intelligence  Centre  Act  (2001) to address concerns around money laundering and terror risk financing.

2) Any intermediary services providers in crypto assets will be required to register and be recognised as financial services providers under the Financial Advisory and Intermediary Services Act  (2002). This is to protect crypto assets consumers.

3) Monitoring and reporting of crypto asset transactions will enhance compliance with South Africa’s Exchange Control

It is also expected that part of the cryptocurrency guidelines in South Africa would be able to come up with measures to regulate electricity‐intensive cryptocurrency mining, which is environmentally harmful.

Sources:

  1. National Treasury Republic of South Africa (February 23, 2022). “Budget Review 2022”. treasury.gov.za. Retrieved May 5, 2022
  2. Crypto Head. “Countries where crypto interest is rising the quickest”. cryptohead.com. Retrieved May 5, 2022

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