The Cryptocurrency Market Is Subject to Increasing Taxation
2017 was a landmark and defining year for cryptocurrencies, with Bitcoin leading the way. Supported by evidence of the growing presence of blockchain platforms and technology that granted digital currencies access to a whole host of new services, from university scholarships to housing share services, traders continued to invest in virtual currencies, undeterred by frequent ups and downs. They often explained away losses as simply being the result of growing pains.
However, as investors who "play" the stock market often comment, beyond the excitement of watching a series of wise and strategic decisions pay off, the downside is the restrictions that come with regulations, though of course most of them are designed to protect investors, not harm them. As cryptocurrency enters a new era of legitimacy this year, it will inevitably be subject to regulations, though not in the same form, given the anonymous nature of its transactions.
Citing issues of transparency, regulators—also last year—began devising small and large methods for ensuring that cryptocurrency transactions are carried out with greater transparency: taxes, if not the best, are definitely the most direct way to achieve this.
In some ways, this should be seen as a happy compromise. In countries like South Korea and Japan, where mass speculation abounds, some lawmakers have developed a negative view of all cryptocurrencies and are exploring legal channels for achieving a complete ban. Though the likelihood of it happening is still quite small, the tension that it creates in the society is significant, as private investors all over the world have made their message to their governments about cryptocurrencies very clear: if governments intervene, it should be to offer protection, not restrictions.
Bringing Bitcoin Off the Grid to Nearby the Grid
Everyone is watching developments related to bitcoin much more closely. South Africa and Australia are examples of two countries that have adopted a flexible, yet proactive approach towards virtual currency. The Australian Taxation Office (ATO), referring to bitcoin and other digital currencies as “as a form of property”, said in an official statement: "Any financial gains made from the selling of Bitcoin will generally be subject to capital gains tax (CGT) and must be reported to the Australian Tax Office," adding that it is "here to help those that are genuinely meet their tax obligations."
It backed its commitment to rooting out lack of transparency by promising to target any examples of "unexplained wealth and conspicuous consumption that may arise through profits derived from cryptocurrency investment."
In South Africa, the South Africa Revenue Services (SARS), though not as advanced in terms of the setup in Australia, is moving in the same direction, also providing education to the public on the tax responsibilities that come with trading cryptocurrencies. University of Witwatersrand School of Accounting senior lecturer Asheer Jaywant Ram explains the challenges of implementing policies: “I think there is enough interest and enough scope for SARS to be looking into this space, but now the question becomes, are they really going to accept taxpayers declaring their gains as capital gains tax or are they going to just say it is all revenue in nature?”
These policy shifts remind one of the clampdowns on file-sharing platforms around 2001 after months of unprecedented and uninterrupted access to thousands of music files.
Though investors’ love of cryptocurrency still continues, we must accept that the honeymoon period has officially ended.