In a move to bolster tax compliance, the South African Revenue Services (SARS) has begun issuing notices to cryptocurrency traders, signaling a comprehensive review of their tax affairs based on data obtained from various crypto asset exchanges. The initiative aims to clamp down on traders who have previously neglected to declare their cryptocurrency profits.
SARS has cautioned that failure to provide the requested information may constitute a criminal offence under the Tax Administration Act. This is part of the revenue service’s stringent “leave no stone unturned” policy, aimed at ensuring complete tax compliance. “For years, crypto asset traders have transacted under the misconception that their crypto-related profits fall outside the domain of SARS,” said Jashwin Baijoo, head of strategic engagement and compliance at Tax Consulting SA. “If they don’t tell, how will SARS ever know? Unfortunately for those too busy monitoring bear and bull markets, a pivotal shift has been missed.”
SARS has confirmed its authority to demand transactional records from banks and intends to extend this to crypto asset exchanges. Baijoo emphasized that traders should not assume SARS will overlook historical non-declaration of crypto ownership. Full disclosure of local and foreign crypto transactions is required, more for verification than data-gathering purposes.
Despite this crackdown, there is still a lack of clear guidance from SARS on the tax treatment of cryptocurrency transactions. “I am concerned that SARS may be going to great lengths to prosecute non-compliant taxpayers involved in cryptocurrency trading,” said Wiehann Olivier, partner and head of fintech and digital assets at Forvis Mazars. “However, if it utilized its efforts to provide taxpayers with clear guidance, it might have a positive effect.”
Olivier noted that SARS has not specified when a cryptocurrency transaction is considered capital or income in nature, leaving traders in the dark. The complexity of tracking gains and losses, especially with high-volume trades through multiple trading pairs, adds to the challenge. Specialized tools are required to monitor exchange trades via API integration or on-chain data.
SARS is reportedly employing Artificial Intelligence (AI) to identify non-compliance, though the effectiveness of this technology depends heavily on the quality of the information used to train the AI models. “To reprimand taxpayers for non-compliance or under-declaration of taxes, SARS would need the resources and manpower to investigate and engage with the relevant taxpayers,” Olivier added. “This is where they may fall short and focus on high-net-worth individuals instead.”
Another significant concern is the exchange control regulations and monitoring by the South African Reserve Bank, particularly when cryptocurrency traders use automated bots to exploit arbitrage opportunities between South African-based and international exchanges. These transactions often involve fiat pairs like sterling, dollars, and euros. “This is a different beast and something nobody is paying attention to,” Olivier remarked.
SARS’s increased proficiency in tracking undeclared crypto profits through a combination of electronic forensic services, AI, and seasoned audit investigators is evident. The looming threat of criminal penalties is likely to compel more traders to comply. The era of relying on crypto’s perceived privacy to evade taxes is evidently drawing to a close.
The intensified scrutiny by SARS marks a significant shift in the regulatory landscape for cryptocurrency traders in South Africa. As the revenue service continues to enhance its capabilities, traders must adapt to the new environment of rigorous tax enforcement. This development serves as a stark reminder of the importance of transparency and compliance in the evolving world of digital assets.
