A critical analysis of value-added tax levied in South Africa in respect of non-fungible tokens

Abstract

Purpose The purpose of this article is to critically analyse the value-added tax (VAT) levied in South Africa in respect of non-fungible token (NFT) transactions.Motivation NFTs represent a novel category of tradable digital assets that use blockchain technology. The South African Revenue Service (SARS) has not issued any guidelines on the VAT treatment of NFTs and therefore the VAT treatment is uncertain.Design/Methodology/Approach A doctrinal research methodology, which included a comparative study with other jurisdictions, was employed to critically analyse the VAT levied in respect of NFT transactions.Main findings This article found that an NFT transaction constitutes a “taxable supply” and that it can constitute the “supply” of “goods” or “services”. Although the VAT consequences of NFT transactions that constitute “goods” are easily established, the VAT consequences of NFT transactions that constitute “services” remain uncertain. The classification of whether the services qualify as financial services, electronic services or imported services remain uncertain.Practical implications The findings of this article accordingly suggest that legislative amendments be made to the VAT Act or that guidance be issued by SARS to clarify the VAT consequences of NFT transactions.Novelty/Contribution Academic research on the VAT treatment of NFTs is also limited. This was the first study in South Africa to critically analyse the VAT treatment of NFT transactions.