• August 7th, 2020

Cryptocurrencies of an income nature can be taxed - analyst

Business & Finance
Business & Finance

Edgar Brandt WINDHOEK – A local economic analyst says that once cryptocurrency or digital currency trading has been defined in terms of whether it is of an income nature, and as such whether it qualifies under the definition of “gross income” as per current tax laws, then legislation already exists that would enable the taxation of cryptocurrency trading deemed of an income nature. According to Cecil Anthony Goliath, an analyst at stock brokerage, IJG, the existing problem is compliance with the Financial Intelligence Act (FIA). “Many cryptocurrency exchanges or platforms are not based in Namibia and this makes it difficult for the regulator to keep track of where money is going or where it comes from. For cryptocurrency trading to be taxed effectively, Inland Revenue will have to rely on the individual’s declaration of trading profits, making it difficult if no declarations are made,” said Goliath in response to questions by New Era. He added that cryptocurrency or digital currency taxation would impact investors and traders differently. Since Namibia does not have capital gains tax (CGT), investors would not be taxed on holding cryptocurrencies but traders would be taxed on the income derived from trading cryptocurrencies. “In essence no currency is taxable, however gains in some form or the other would be taxable through CGT, if it were implemented. The hurdle will lie in the FIA process, and as previously mentioned tax legislation already exists to include cryptocurrency trading if deemed of an income nature,” Goliath reiterated. While some tax experts have suggested that cryptocurrencies could be taxed along the lines of CGT, if implemented in Namibia, Goliath cautions that whether the country needs CGT comes down to a cost-benefit analysis. “CGT elsewhere in the world is usually lower than the normal income tax rate, and if considered in Namibia would be the same. The administration costs associated with the implementation of CGT collection are very likely to exceed the tax revenue collected, and as such would not make any economic sense. If introduced, CGT would not apply to the profits generated by cryptocurrency trading, rather to the possible capital appreciation (as much as loss of capital being possible) achieved from holding a cryptocurrency,” said Goliath. Last week a local tax expert, Gerda Brand, cautioned that the absence of specific guidance provisions in Namibian tax legislation for cryptocurrencies persists which means that most investors and traders are probably not even considering tax consequences of trading in digital currency. Brand was speaking at the Old Mutual Investment Summit where she admitted that she has more questions than answers regarding the taxation of digital currency and specifically cryptocurrency in the country. Brand noted that CGT, if implemented locally, could to a certain extent address the use and investment in cryptocurrency, which is a digital or virtual currency that uses cryptography for security. However, while the introduction of domestic CGT has been debated for a number of years, Namibia currently has a source-based system of taxation with the result that local residents are, save for some exceptions, only taxed on their Namibian income while foreign residents are taxed only on the income generated within Namibia. CGT has however been introduced in a number of countries around the world and was introduced as far back as 1965 in the United Kingdom. During her presentation last week titled ‘Technology and Innovation – tax in the world of investment’, Brand pointed out that if cryptocurrency is used for trading, such as payment of goods or services, it could be seen as barter transaction for tax and VAT purposes. “Specific legislation dealing with these issues needs to be simple and needs to consider other countries’ legislation in order to avoid double tax,” said Brand. Acknowledging that the use of cryptocurrency to avoid tax is hugely a policy issue and a headache for revenue agencies around the world, Brand questioned how tax could even be collected or traced by third parties or revenue authorities if the trading takes place in anonymity.
New Era Reporter
2018-07-24 09:41:38 | 2 years ago

Be the first to post a comment...

You might also like...