SARS targets crypto

The South African Revenue Service (SARS) has been honing its “automatic exchange of information” process with various countries and financial institutions – and crypto asset exchanges are its next target.

This is according to Tax Consulting SA’s head of strategic engagement and compliance, Jashwin Baijoo.

“Though not entirely unprecedented or unexpected to crypto asset traders or investors, this revelation can spell out the beginning of the end, where historic crypto-related profits or gains have gone undeclared,” Baijoo said.

“If you have been in the crypto game for a while or maybe spent some time in the metaverse, transparency on these activities is essential.” 

“That borne in mind, practically, we have seen scores of instances where profits or gains derived from crypto asset disposals have not been declared to SARS, either due to a lack of knowledge or out of fear from the repercussions.”

Baijoo said SARS has made its mandate to collect revenue by whatever means necessary clear and plans to ensure a culture of compliance. This process has included:

  • Deep-diving into historic audits on wealthy individuals.
  • Obtaining transactional records directly from banks.
  • Implementing new enhanced compliance processes on international transfers of funds.

The fruits of these labours were evident in the presentation of SARS’ Annual Performance Plan 2024/25, which showed significant increases in revenue collections. 

In the presentation of this plan, SARS also highlighted its next strikes, being the 5 “must-win” battles, which include the revenue service leveraging its resources and achieving more with less.

“There can be no doubt in one’s mind that this includes data-driven insights, subject to enhanced processing, and certainly includes transactional records from Crypto Asset Exchanges,” Baijoo said. 

In concretising the interpretation of this ‘must-win battle, Baijoo said the below excerpt from a Request for Information should be considered by all crypto enthusiasts:

Excerpt from a SARS Request for Information pertaining to undeclared crypto-asset transactions. Source: Tax Consulting SA

Baijoo warned that there are a large number of scams claiming to be SARS collections and even requesting confidential information. He cautioned that taxpayers must always be careful about what information is shared.

“When receiving any request for information, especially one requesting not only confirmation of your crypto trading activity but also your wallet and blockchain addresses, together with all trading account details, the priority is always to verify the validity of such request,” he cautioned.

“Typically, where there has been a failure to correctly declare crypto-related profits or gains, we see taxpayers going into panic mode and hastily submitting what they can, or simply ignoring the request, only to be shocked with a subsequent adverse finding and large tax bill.”

How crypto is taxed in South Africa

In South African tax law, crypto assets are considered financial instruments under the Income Tax Act.

This means any profits from dealing in crypto assets may fall within the tax net and be subject to disclosure and possible liability towards SARS.

Cryptocurrency transactions are subject to a range of tax regulations, including capital gains tax, income tax, and VAT in some cases. 

Under South African domestic law, a crypto asset is not considered a currency but has a capital or revenue nature, depending on the circumstance.

Therefore, normal income tax rules will apply to crypto assets, and traders must declare any losses or gains per tax year. This will fall under ‘gross income’ or ‘capital gain’.

Baijoo said that as a rule of thumb, any and all correspondence received from SARS should be immediately addressed. 

“Where taxpayers know they are in the wrong, it is market best practice to seek the guidance of a specialist tax attorney,” he said. 

“This not only ensures you are not subjecting yourself to a scam artist and allows legal verification of any requests received but also grants you legal professional privilege and guidance on the correct legal remedy.”

“Not only will this place you in a better position of knowledge, but when the correct tax and legal strategy is followed pro-actively, it will ensure both historical and current compliance with SARS.”