South Africa is ramping up its cryptocurrency tax system with the announcement of new compliance measures. The South African Revenue Service (SARS) has revealed it is integrating crypto assets into the compliance framework to ensure crypto taxpayers are not evading taxes.
The move aims to speed up the detection and reporting of undeclared cryptocurrency holdings as tax authorities across the world struggle to cope with rising crypto-related frauds. The tax-collecting authority is working with the Financial Sector Conduct Authority (FSCA) to identify non-compliance issues among crypto taxpayers. SARS has also roped in crypto service providers for this purpose.
The present South African tax law takes a decentralised approach to regulating the cryptocurrency market, which makes it difficult for tax authorities to monitor crypto transactions. However, new crypto tracking technologies have made it easier for crypto service providers to collaborate with regulatory bodies to tackle tax evasion issues.
Part of the new measures include public awareness campaigns to make crypto taxpayers aware of their obligations and establishing a data-sharing protocol with crypto service providers and the FSCA, which will lead to effective monitoring of suspicious activities using advanced tools. Crypto taxpayers will be encouraged to disclose previously undeclared crypto assets without any penalties through the Voluntary Disclosure Program (VDP), revealed SARS.
As per the tax authority, all cryptocurrency investors and users in South Africa should strictly follow this mandate, as non-compliance can result in penalties like fines and legal action. In South Africa, cryptocurrencies are treated as assets, not just a currency, which makes them fall under capital gains tax (CGT) upon disposal. Cryptocurrency traders are treated as people doing business, making their profits taxable as income. At present, the supply of cryptocurrency is zero-rated for Value Added Tax (VAT) purposes.
Tax consultants and crypto market analysts are optimistic about the new measures. While cryptocurrency analysts like Dr Thabo Mokoena have termed it “a significant step towards ensuring transparency and accountability in the South African cryptocurrency market," tax consultant Linda Nkosi thinks "by leveraging data-sharing mechanisms, SARS can more accurately identify and address instances of non-compliance."
So far the new SARS initiatives seem to hold mixed implications for the South African crypto market, as they can boost investor confidence and market legitimacy and also make way for higher operational costs and privacy concerns.
Crypto taxpayers in the country have to stay informed about their obligations and accurately report their digital asset holdings, in line with global trends amongst tax agencies in the crypto sector. According to the International Monetary Fund (IMF), tax agencies in more than 60% of countries across the world are considering cryptocurrency tax measures.