The South African Revenue Service (Sars) yesterday warned it was cracking down on non-compliance of crypto assets and for taxpayers to disclose related activities on a voluntary basis.
This comes as more than 5.8 million South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin in the world.
Normal income tax rules apply to crypto assets and affected taxpayers need to declare crypto assets’ gains or losses as part of their taxable income. The onus is on taxpayers to declare all crypto assets-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.
“Sars is concerned that these crypto assets and trades are not being declared on the tax returns of taxpayers. Sars is legally obligated to account for any income or assets held by taxpayers,” it said.
To enforce compliance, Sars is engaging with the Financial Sector Conduct Authority regarding the provision of information on registered Crypto Asset Service Providers. Sars is also receiving information directly from the local exchanges.
Furthermore, Sars said it was exchanging information with other tax authorities globally.
“The provision of offshore crypto accounts will be the subject of a multilateral agreement to be signed by Ministers of Finance in November 2024, which will catalyse the cross jurisdictional exchange of such information in respect of South African taxpayers,” it said.
The tax authority also said it was increasing capability in its audit teams to support enforcement initiatives.
“Sars has resorted to greater use of artificial intelligence, machine learning and algorithms to process our work. In implementing our mandate, Sars has recently issued query letters to taxpayers with crypto assets. These letters aim to gain an insight into taxpayers’ investment in crypto assets and the trades undertaken to enable Sars to assess taxpayers’ compliance in this regard,” it said.
Sars reminded taxpayers that are effected about the Voluntary Disclosure Programme (VDP) to facilitate compliance, but warned that this had strict conditions.
Taxpayers must approach Sars first. Once Sars had identified the taxpayer for audit, they were precluded from applying for the VDP.
Sars Commissioner Edward Kieswetter said, “Sars has been working ceaselessly to ensure compliance by all taxpayers, and those who are evading their responsibility make the burden of compliance difficult for compliant taxpayers.
“This is not only unfair to honest taxpayers but affects the vulnerable in society disproportionately by limiting the state’s ability to deliver social grants and other much needed social benefits. Let all know that technology has enhanced Sars’ ability to root out non-compliant taxpayers. Be warned, Sars will pursue all without fear, favour or prejudice,” he said.
Roger Eskinazi, a managing partner at Tickmill, said capital gains realised from the trade of cryptocurrency had also been incorporated into the Capital Gains taxation system.
There were activities that remain tax-free, including the purchasing of cryptocurrency with fiat currency and, holding and transferring cryptocurrency between wallets that are owned by the same person.
“To remain compliant therefore, online traders need to ensure that they are registered with Sars and declare their gains accurately. Individuals must keep comprehensive records of their cryptocurrency transactions, including the dates, amounts, counterparties, and the nature of each transaction. These details are important for accurate tax reporting and to avoid facing unnecessary fines and penalties,” he said.
Dale Russel, a director of TrustReserve Solutions and Moore Blockchain and Digital Assets JHB, said, “Traders — individuals who frequently buy and sell crypto for short-term gains — are taxed on their profits as regular income. In contrast, investors holding crypto for long-term appreciation are subject to capital gains tax, which is lower but only applies to 40% of the gain, less an annual exemption of R40000,” he said.
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