SARS coming after South African crypto traders with the threat of jail time

The South African Revenue Service (SARS) has crypto traders on its radar, and not reporting crypto gains can lead to serious penalties or even jail time.

This is according to Jashwin Baijoo, Tax Consulting South Africa’s Associate Director and Head of Strategic Engagement and Compliance.

In a recent press release, SARS encouraged taxpayers with various digital currencies, which includes crypto assets, to declare these with its Voluntary Disclosure Programme (VDP) to facilitate compliance.

SARS noted the immense growth in South Africans using digital currencies, particularly crypto assets. Over 5.8 million South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin in the world.

“SARS is concerned that these crypto assets and trades are not being declared on the tax returns of taxpayers,” it said.

“SARS is legally obligated to account for any income or assets held by taxpayers and had previously invited crypto exchanges and those involved in trading or holding crypto assets to disclose related activities on a voluntary basis.” 

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

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

The taxman is also receiving information directly from the local exchanges.

Baijoo said this confirmation that SARS can receive information directly from local crypto asset exchanges will ensure non-compliance is both hard and costly for taxpayers.

He said the release highlighted SARS’ legal obligation to account for any income or assets held by taxpayers, including crypto assets held on offshore platforms.

“The historically common misconception amongst taxpayers that crypto profits or gains fall outside the South African tax net has been addressed by the revenue collector and SARB on numerous occasions,” he said.

“In short, taxpayers must be aware that crypto-related activities, even though on-platform and not realised for fiat gain, do carry with them stringent reporting requirements, including declaration and payment of taxes due on the benefits derived thereon.”

Baijoo warned that, with a pool of uncollected revenue that large, SARS is pushing for an increase in capability within its audit segments to support efficient and effective tax revenue collections from crypto traders and investors.

He said those who hold or have ever held crypto should not assume that historical non-declaration means that SARS will not look to tax these profits in future.

“Not only will a review of this historical transgressions be conducted but should the crypto trader under the radar not comply, severe penalties, or even jail time is immediately on the cards, per section 234 of the Tax Administration Act,” he said.

Practically, this means that even though taxpayers are requested to make full disclosures to SARS on local and foreign crypto transactions, this is more for verification than data-gathering purposes.

“While taxpayers falsely assume that what they do not disclose remains so, they are sorely mistaken and under-estimate SARS’ non-discriminate approach to the eradication of non-compliance and access to information from CASPs,” he warned.

Baijoo has previously explained that non-compliance with declaring crypto assets can often result from a misunderstanding of how they’re classified in South African tax law.

In South Africa, crypto assets are considered financial instruments under the Income Tax Act.

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

“As simple as this disclosure may sound in theory, unfortunately, the reality is more complicated,” he said. 

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

“Moreover, the rules around cryptocurrency taxation are constantly evolving, with different jurisdictions interpreting the law in different ways.”

He urged South Africans whose crypto assets have been growing in value to heed the warning that SARS is actively monitoring these developments.