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It is often said that there are only two things in life that are certain: death and taxes. The accuracy of this position extends beyond just our universal realm and finds applicability in the metaverse.

The objective of this article is to provide a conceptual idea of what the metaverse is and the tax implications, if any, thereof in the South African tax law landscape.

What is the metaverse and why you should care about it

At present, due to the ever changing and evolving nature of the metaverse, an accurate and definite definition is not yet confirmed. However, in its current form, the metaverse is conceptualised as a simulated digital environment or platform which mixes the “real” world with a “virtual” one, enabling a real-time, virtual experience. The metaverse converges physical, digital, and augmented reality and is often referred to as a digital universe that can be accessed through virtual and augmented reality in which users, businesses, and digital platforms can exist and interact.

The metaverse is said to change the way individuals view the business landscape and the trading of digital assets. Currently, the business sector abroad and in South Africa are swiftly engaging and exploring the opportunities being offered in the metaverse. In February 2022, MTN, the popular mobile network, became the first African company to enter the metaverse by purchasing land in Africarare, a virtual reality metaverse which features digital land.

The metaverse economy

The metaverse’s economy is based on blockchain technology and related asset classes like non-fungible tokens (NFT’s) and cryptocurrency. Blockchain technology can be defined as a structure that stores transactional records of the public in databases, called the “chain”, in a network connected through peer-to-peer nodes. Typically, this storage is referred to as a “digital ledger.”

Every transaction in this digital ledger is authorised by the digital signature of the owner, which authenticates the transaction and safeguards it from tampering. Accordingly, the information contained on the digital ledger is highly secure.

Consequently, NFT’s are blockchain-based tokens that each represent a unique asset like media, digital content, or art. Practically, an NFT can be thought of as an irrevocable digital certificate of ownership and authenticity for a given asset, whether digital or physical.

Individuals and businesses alike can use NFT’s to sell and buy digital assets in the metaverse. Due to the demand for high-value NFT’s, businesses and individuals alike may find optimal investment opportunities in the metaverse.

Trading with crypto assets in the metaverse and the tax implications through a South African lens

It is trite that all commercial transactions in the metaverse are conducted virtually. However, regardless of the platform on which space trading takes place, for tax purposes, the trading of a digital asset still amounts to the trading of an asset which has monetary value. Consequently, as indicated by the South African Revenue Service (SARS), the usual income tax rules and principles will apply to digital assets, whereby affected taxpayers will have to declare digital asset gains or losses as part of their taxable income.

SARS makes use of the term “crypto asset” as opposed to “digital asset.”  A crypto asset, as defined by SARS, is a digital representation of value that is not issued by a central bank, but is traded, transferred, and stored electronically by natural and legal persons for the purpose of payment, investment, and other forms of utility, and applies cryptography techniques to the underlying technology.

The Income Tax Act 58 of 1962 (“ITA”) defines a financial instrument to include any crypto assets. The ordinary meaning of crypto asset includes cryptocurrencies and NFT’s. The ITA does not contain special rules for crypto assets. This means that the regulation of crypto assets would be in terms of the usual income tax rules for financial instruments.

In terms of the usual rules of income tax law, income received or accrued from digital asset transactions is either regarded as revenue or capital in nature. In order to determine the category in which the transaction would fall, the usual tests are employed, which would, among other things, entail considering whether the taxpayer was engaged in a scheme of profit-making; whether there was a realisation of an asset for capital gain; the sale of an existing asset for the purpose of generating revenue; the frequency of trades and the intention of the taxpayer.

Consequently, and pursuant to the above, depending on whether the transaction is revenue or capital in nature, taxpayers would be allowed a deduction on the expenditure incurred in the production of the income, or the costs associated with a capital asset would form the base cost of the crypto asset.

Notwithstanding the above position and largely due to the ever changing and evolving nature of the metaverse, there still exist several unresolved questions. At present, South Africa does not regard crypto assets or cryptocurrencies as legal tender and while digital assets remain largely unregulated the duty to declare digital assets related taxable income in the tax year upon which it was accrued, still vests with the taxpayer.


The South African Reserve Bank has announced its intention to implement various workstreams, including a regulatory framework for crypto exchange platforms that will ensure compliance with anti-money laundering and exchange control regulations and tax laws. Consequently, it is undisputed that South Africa is moving towards a more efficient monitoring system to identify these events and transactions. Accordingly, taxpayers who failed to declare previous income or gains from digital assets may very well find themselves in hot water whereby they may be liable for additional tax, interest, and penalties.