Blockchain in Business: From Speculation to Commercial Advantage
For many, cryptocurrency still brings to mind volatile investments, speculative trading and concerns about fraud. Yet blockchain technology is increasingly finding practical applications in everyday business. Understanding this is becoming more important, even for businesses that never contemplated using cryptocurrency.
One example is the growing use of stablecoins — digital tokens designed to maintain a stable value relative to a conventional currency, such as the South African rand. Unlike more volatile cryptocurrencies, ZAR-backed stablecoins aim to maintain a value of R1 per token, enabling businesses to explore blockchain-based payments with reduced exposure to cryptocurrency price fluctuations.
The potential commercial advantages include:
- Faster settlement: Transfers can take place around the clock, rather than being restricted to conventional banking hours.
- Automated payments: Smart contracts can automatically execute transactions when predefined conditions are satisfied, reducing manual intervention and human error.
- Lower transaction costs: Blockchain payment arrangements can reduce reliance on intermediaries, potentially lowering processing costs.
- Security and traceability: Cryptographically secured, tamper-resistant transaction records make transfers easier to trace and verify.
Importantly, businesses need not own or hold cryptocurrency to benefit.
In South Africa, MoneyBadger enables cryptocurrency-funded payments through existing payment providers, including Zapper, Ozow and Peach Payments. Depending on the integration, merchants can accept payments through existing QR-code or online checkout facilities while receiving rand. Conversion takes place behind the scenes. Accordingly, where the retailer never acquires beneficial ownership of the cryptocurrency and receives rand directly through the payment arrangement, the retailer would generally not make a separate supply of cryptocurrency.
Businesses can therefore offer customers additional payment options without managing digital assets themselves.
But does using blockchain payment infrastructure have the same VAT consequences as receiving money into an ordinary bank account?
What Does Section 2(1)(o) Actually Exempt?
South African tax legislation distinguishes cryptocurrency from conventional money. Yet most of the ordinary VAT principles remain unchanged when businesses use cryptocurrency.
Since 1 April 2019, section 2(1)(o) of the Value-Added Tax Act 89 of 1991 has included the issue, acquisition, collection, buying, selling or transfer of ownership of any cryptocurrency within the definition of “financial services”, with the result that such supplies are generally exempt from VAT under section 12(a).
For example, if a cryptocurrency exchange sells R10,000 worth of qualifying cryptocurrency, the underlying sale will qualify as an exempt financial service in terms of the VAT Act.
The exemption applies to specified cryptocurrency dealings, not every transaction involving cryptocurrency or blockchain technology.
Does Paying with Cryptocurrency Exempt the Goods or Services?
No.
A VAT-registered retailer selling standard-rated goods must account for the same output VAT whether the customer pays by cash, card or ZAR stablecoins. The payment method does not change the VAT treatment of the underlying sale.
However, the payment structure can affect input VAT recovery:
Payment through an intermediary
A payment provider receives cryptocurrency from the customer, converts it into rand and settles the rand amount directly with the retailer. Because the retailer never acquires or holds the cryptocurrency, it does not make a separate supply of cryptocurrency.
Direct receipt of cryptocurrency
Alternatively, the retailer may receive stablecoins into its own digital wallet — a digital tool for holding and transferring tokens — and later sell them for rand. If the retailer disposes of the stablecoins in the course of its enterprise, the disposal constitutes a separate supply of exempt financial services under section 2(1)(o). This is distinct from the original taxable supply of goods or services.
Where a business makes both taxable sales and exempt cryptocurrency supplies, input VAT on expenses used for both activities may need to be apportioned, potentially reducing the input VAT recoverable from SARS (except for where taxable use of the relevant goods or services is at least 95% and section 17(1) permits full input VAT recovery).
For VAT-registered businesses, this distinction matters.
Are Cryptocurrency Transaction Fees Also Exempt?
Not necessarily.
Separate fees, commissions or similar charges are excluded from the financial-services exemption and may therefore constitute taxable supplies where charged by a vendor in the course or furtherance of an enterprise in terms of the proviso to section 2(1).
For example, an exchange selling R10 000 worth of cryptocurrency may charge a separate transaction fee. The cryptocurrency dealing is exempt, while the fee attracts VAT where the exchange makes a taxable supply as a VAT vendor.
The distinction also affects input VAT recovery. A VAT vendor may ordinarily deduct, as input tax, VAT incurred on payment-processing fees relating to taxable sales. By contrast, VAT incurred on fees relating to the disposal of cryptocurrency as an exempt financial service is ordinarily not deductible.
A genuine trading margin earned from buying and selling cryptocurrency at different prices remains part of the exempt financial-services activity, rather than automatically constituting a taxable fee. A profit or spread realised as part of the buying and selling of cryptocurrency generally forms part of the exempt financial-service supply itself, provided it does not constitute a separately identifiable fee, commission or similar charge.
What Does This Mean for South African Businesses?
Businesses can benefit from blockchain payment infrastructure through intermediaries that convert tokens and settle directly in rand, without holding cryptocurrency or changing the output VAT treatment of their ordinary sales.
Businesses receiving and subsequently converting cryptocurrency themselves may undertake additional exempt transactions, potentially affecting input VAT recovery.
The practical VAT question is therefore not simply whether a business uses blockchain, but whether it receives rand or cryptocurrency, and which services it pays for.
Looking Ahead
Businesses need not wait for blockchain to replace conventional banking systems before benefiting from its capabilities. It can already operate alongside existing payment infrastructure, offering opportunities for more efficient settlement, automation, lower transaction costs and transparent, traceable records.
The opportunity is to benefit from blockchain technology without necessarily becoming a cryptocurrency investor — or complicating the VAT treatment of everyday business transactions.
