SARS going after a new group of South Africans

The South African Revenue Service (SARS) is coming after citizens who have not declared their crypto assets and trades.

SARS said it had noted the phenomenal growth of the use of various digital currencies by many South Africans. Prominent amongst these is the prevalence of crypto assets.

“A staggering number of more than 5.8 million South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin globally,” it said.

The taxman expressed concern that these crypto assets and trades are not being declared on taxpayers’ tax returns.

SARS is legally obligated to account for any income or assets held by taxpayers and had previously invited crypto exchanges to voluntarily disclose related activities.

“As a follow up, SARS will be including crypto assets into its compliance programmes,” the revenue service said.

SARS is engaging with the Financial Sector Conduct Authority (FSCA) regarding the provision of information on registered Crypto Asset Service Providers (CASPs).

SARS also receives information directly from local exchanges to ensure compliance by those involved in trading or holding crypto assets.

“Importantly, it must be underscored that through multilateral agreements, SARS is exchanging information with other tax authorities globally,” it said.

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 with respect to South African taxpayers.

“Critically, our strategic objective is to make it hard and costly for those who are wilfully non-compliant,” SARS said.

To ensure crypto compliance SARS is 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 its work.

The tax authority has recently issued query letters to South African taxpayers with crypto assets.

These letters aim to gain insight into taxpayers’ investment in crypto assets and the trades to enable SARS to assess taxpayers’ compliance.

Crypto investors and traders must be tax compliant

The Institute of Information Technology Professionals South Africa (IITPSA) Blockchain special interest group has also promoted tax compliance regarding crypto assets.

“Cryptocurrency is subject to all the tax and foreign exchange control regulations fiat currency is,” the IITPSA said.

Candice Mesk, director of the Developer User Group, said there is no tax implication for buying and holding crypto on a local digital exchange.

However, this is only the case when the asset is not sold. The tax event occurs when crypto is exchanged for another asset, transferred, or spent.

“The first in, first out principle is applied so that the oldest crypto asset will be disposed of first,” she said.

“A gain or loss is calculated based on what the oldest token in your wallet was worth when you bought it and its value when sold.”

Mesk noted that crypto tax is calculated differently, depending on the user’s intention with their cryptocurrency.

“For typical investors, tax is calculated on capital gains and losses, but revenue earned is taxed at the normal income tax rate,” she said.

“You need to declare that as income if paid in crypto. When trading regularly on an exchange, yields may also be considered revenue or income.”

“All earnings need to be declared appropriately and are taxable. SARS expects us all to be responsible citizens about it.”