Repository logo

A critical analysis of the effectiveness of taxation regulation of cryptocurrencies in mitigating the facilitation of tax evasion in South Africa.

Thumbnail Image



Journal Title

Journal ISSN

Volume Title



In finance, law and technology, change is an inevitable result of development. Whilst governments, legal authorities and financial regulatory bodies may be sceptical or hesitant to accept the natural progression of technology, the digital revolution will not regress, but merely continue to thrive against a background of hostility. Thus, the importance of regulatory structures which effectively standardise digital innovations is reflected through the necessity thereof. It is submitted therefore, that it is wise to mitigate the consequences of the ineffective regulation of digital innovations. One such innovation which has been exponentially gaining traction in the field of technology is that of cryptocurrency.1 This research explores the need for effective cryptocurrency regulation by examining the necessity of a solid legal regulatory foundation upon which it may be integrated into the financial sphere in South Africa.2 Submissions will be made that it is insufficient to merely impose superficial legal regulations on cryptocurrency without accounting for various factors of consideration where the novelty of cryptocurrency is concerned in relation to the nature thereof. In SA specifically, taxation authorities3 have been implementing regulations regarding cryptocurrency, which will be analysed and evaluated through this research. In the likely event of cryptocurrency becoming a primary medium of transacting, the taxation regulations thereof must be effective to mitigate any negative effects (of insufficient and ineffective regulation) for taxpayers and the fiscus. It is imperative that regulatory bodies such as the legislature and the South African Revenue Service,4 ensure that the regulation of cryptocurrency in SA is effective so that any lacunae in existing legislation which could yield negative consequences for taxpayers and/or the fiscus are adequately addressed and effectively mitigated. From a taxation perspective, it is submitted that one of the main negative consequences of the lack of effective regulation of cryptocurrency is the potential of tax evasion. Tax evasion in relation to cryptocurrency will be analysed and discussed in this research based on the nature of cryptocurrency. The lack of cryptocurrency regulation is also cause for concern among taxpayers who use cryptocurrency without surety of how the proceeds therefrom will be taxed. Recommendations will thus be made regarding the implementation of a legislative definition of cryptocurrency to provide preliminary regulatory clarity on the taxation of cryptocurrency. This research envisages that the lack of understanding and effective regulation of cryptocurrency in SA should also be addressed by advisory, regulatory and authoritative bodies insofar as these bodies taking active steps to resolve the confusion surrounding the categorisation of cryptocurrency is concerned. The effectiveness of taxation regulations (or rather, the lack thereof) of cryptocurrency in SA will therefore be examined through this research, by analysing existing plans, proposed policies and new legislation as well as criticising the lacunae in the law which exist in cryptocurrency regulation. Furthermore, this research aims to prove that cryptocurrency regulation in SA is inadequate and ineffective. This issue will be explored in a holistic sense in order to assert that the lack of adequate cryptocurrency regulation is in fact a global issue. The legislation addressing the taxation of cryptocurrency in SA will be evaluated in order to ascertain whether the relevant legislative provisions will be sufficient in addressing the issues related to the taxation of cryptocurrency and tax evasion specifically, and subsequently used to prove that cryptocurrency regulation is in fact insufficient. In addressing the issues explored through this research, it is proposed that the nature of cryptocurrency must be considered as the foundation upon which the legislature constructs cryptocurrency regulations. From a practical perspective, it is proposed that a formal definition of cryptocurrency be implemented in legislation (in order to provide further clarity on the taxation treatment thereof) and a provision be inserted in legislation addressing the taxation treatment of cryptocurrency. It is also recommended that the UK and Germany be looked towards for cryptocurrency regulation in terms of SARS implementing an interpretation note thereon as well as ensuring that the content of the interpretation note/position paper is formulated in accordance with the UK government’s position paper on the taxation treatment of crypto assets. This research proposes that authoritative bodies must ensure cohesion regarding the categorisation of cryptocurrency as well as regulation thereof in order to provide clarity on cryptocurrency regulation as well as ensure the effective regulation thereof.


Masters Degree. University of KwaZulu-Natal, Durban.