While there are no specific laws governing cryptocurrencies in South Africa, the South African Reserve Bank (SARB) did issue a position paper (2014). The position paper stated that only the SARB may issue legal tender and that cryptocurrencies are therefore not legal tender in South Africa. The SARB also warned of various risks associated with the use of cryptocurrencies, including issues relating to payment systems and payment service providers, price stability, money-laundering and terrorism financing, consumer risk, circumvention of exchange control regulations, and financial stability.
On April 6, 2018, the South African Revenue Services (SARS) issued a clarification on the tax status of cryptocurrencies. SARS noted that it “will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains as part of their taxable income.” Taxpayers must therefore declare all their cryptocurrency income and failure to do so could result in imposition of interest and penalties. The amount of tax accrued to a person could differ a great deal depending on whether gains in cryptocurrencies are taxed as income or capital gains.
In 2019, the South African government established the Crypto-asset Regulatory Working Group. It will investigate all aspects of cryptocurrencies and related blockchain concepts with a view to develop a cohesive governmental response to cryptocurrencies and a unified intergovernmental regulatory framework. “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,” finance minister Tito Mboweni stated. The new group will include representatives from the Financial Intelligence Centre, the Treasury, the Financial Sector Conduct Authority, the Reserve Bank and the SA Revenue Service (Sars).
In 2016 the Intergovernmental FinTech Working Group (IFWG) was established, comprising members from NT, the SARB, FSCA and FIC. The aim of the IFWG is to develop a common understanding among regulators and policymakers of financial technology (fintech) developments as well as policy and regulatory implications for the financial sector and economy. In January 2019, it launched a Consultation Paper on Policy Proposals for Crypto Assets. Concerned about price volatility, liquidity risk, fraud and hacking incidents, the IFWG is proposing a set of regulations to protect crypto-assets investors – and help keep an eye on decentralised digital tokens, that include subjecting crypto-asset service providers to registration. This “could lead to formal authorisation and designation as a registered/licensed provider for crypto-asset services operating in SA.” The providers would be required to comply with AML rules and monitor and report suspicious transactions, such as cash transactions of R25,000 and more. The paper was open to the public for comment until 15 February 2019.
South African Reserve Bank Project Khokha
Beyond regulatory work, there have also been blockchain-related POCs implemented in the country. In June 2018, the South African Reserve Bank successfully completed Project Khokha, a POC designed to simulate a ‘real-world’ trial of a distributed ledger technology (DLT)-based wholesale payment system. The project focused on providing participants practical experience on aspects of using DLT in a realistic test environment where different deployment models were utilised. The objectives of Project Khokha were to build on the initiatives previously undertaken by global peers and to gain further insights on DLT developments in a South African wholesale payments context. The Project provides a better understanding of how South African Multiple Option Settlement (SAMOS) system would integrate with a DLT system.