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Home / Investors not considering tax implications of cryptocurrencies – tax expert
Investors not considering tax implications of cryptocurrencies – tax expert
2018-07-20Staff Report 2 Edgar Brandt WINDHOEK - A local tax expert has warned 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. Speaking at Old Mutual’s Investment Summit in the capital earlier this week, Gerda Brand, Director of Taxation Services at Deloitte, admitted that she has more questions than answers regarding the taxation of digital currency and specifically cryptocurrency in the country. Brand noted that capital gains tax, 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. Capital Gains Tax (CGT) is defined by businessdictionary.com as “tax payable on profit made on the sale (disposal) of a capital asset, assessed and levied differently from tax on profit (income tax) realised from the sale of goods or services in the normal course of a business. Often, profits on capital assets held for 12 months or longer are taxed at a favourable (lower) rate”. However, while the introduction of a 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, safe for some exceptions, only taxed on their Namibian income while foreign residents are taxed only on the income generated within Namibia (Deloitte). 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. “We should look at making our tax system more progressive – the options of introducing a Capital Gains Tax and an Inheritance (Estate) Tax should be researched,” suggested Graham Hopwood, Director of the Institute for Public Policy Research in a recent article on inequality in Namibia. Meanwhile, during this week’s presentation titled ‘Technology and Innovation – tax in the world of investment’, Brand pointed out that if crypto-currency is used for trading, such as payment of goods or services, it could be seen as barter transaction for tax and VAT purposes. However, some of the principle questions Brand has regarding investment in crypto-currencies and the taxation thereof, is whether crypto-currencies are an asset or a currency and if cryptocurrency investment was made with a profit-making objective because “a gain or loss in dealing with a profit-making asset would generally be taxable or deductible and a gain or loss in dealing with an asset with an investment objective is generally capital in nature and not taxable or deductible”. Brand further emphasised that no guidance has yet been received from Namibia’s Revenue Authorities. Such guidance or specific legislation, she believes, will provide certainty and to some extent avoid different interpretations and applications of the laws. “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 crypto-currency to avoid tax is a huge 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. “When trying to tax cryptocurrencies you are confronted by numerous questions such as the identity of the trader, the source of the transaction for income tax and depending on type of transaction you have to ask if withholding tax is applicable? If withholding tax is applicable, how is tax remitted and what values should be used to determine the tax or withholding tax, are the goods or services consumed in Namibia and if so is the transaction VATable? Then, how will this VAT be collected?” asked Brand. She concluded that while a complex e-commerce market is definitely here to stay but cautioned that crypto-currency is even more complex, mainly due to its anonymity feature. “Crypto-currencies should however not to be used in the clearing system between banks and the central bank to ensure that the monetary system is not undermined. But, the trust-less transfer and ledger technology is useful for future competition in the financial system provided something like pre-registration measure is employed to verify an owner’s identity and that permits consumer protection, tax and anti-laundering,” said Brand. 2018-07-20Staff Report 2
