SARS cracks down on crypto

SARS has intensified efforts to crack down on undeclared crypto transactions by leveraging data from exchanges and advanced analytics, and experts warn that non-compliant South Africans could face serious penalties.

Tax Consulting SA tax attorney Junaid Bhayla explained that this crackdown follows SARS’ introduction of the Crypto Revenue Augmentation Unit.

Since then, numerous taxpayers who have traded, invested or even used crypto assets for purchases have received Audit and Request for Relevant Material Notices, specifically relating to such crypto asset transactions.

These Notices focus on the tax treatment of taxpayers’ crypto asset transactions for the relevant periods in which they have disposed of crypto assets.

Bhayla stressed that SARS is indiscriminately cracking down on this potential revenue cash cow. This means there has never been a better time to become voluntarily compliant.

He explained that SARS has significantly improved its capacity to detect crypto activity and non-compliance. There are two significant drivers behind this.

Not only does it align the taxman with global tax enforcement trends, but given the popularity of crypto asset transactions, SARS has the potential to generate substantial revenue following crypto asset disposals.

“SARS’ powers exceed the ordinary and include the power to request CSV files from Crypto Asset Service Providers,” he warned. “This is done through strategic partnerships with financial institutions and crypto exchanges.”

“In fact, major South African crypto exchanges are required to submit Know Your Customer information and transaction reports, giving SARS direct insight into user activity.” This enables SARS to see valuable data.

With this, SARS can leverage its automation and AI-driven data analytics to cross-reference taxpayers’ declared income and assets with transactional data on the various exchanges.

“When discrepancies arise, audits and enforcement actions are sure to follow.” The focus on crypto assets appears to be in line with SARS’ Project AmaBillions, he added.

This wide-reaching initiative aims to fast-track the recovery of tax debt, which is undisputed and owed to SARS. As such, it also bolsters the taxman’s resources and recruitment to focus exclusively on recovering tax debt.

This drive seems to include crypto-related non-compliance, a lucrative avenue of revenue generation not only for taxpayers but also for SARS.

With an intensified data-driven approach, taxpayers engaged in crypto asset transactions should ensure their affairs are fully compliant.

Warning for taxpayers

Bhayla said that, due to the nuanced nature of crypto assets as a whole and the lack of guidance regarding the correct tax treatment, the functions of this specialist crypto unit require more human intervention than most others.

The recent focus on crypto assets and the broader compliance drive will likely include support for the Crypto Revenue Augmentation Unit, which will further identify non-compliance and recover revenue through crypto asset disposals.

SARS has estimated that at least 5.8 million South African taxpayers have acquired crypto assets. However, SARS said it knows that not all taxable events related to these assets have been disclosed.

“The potential revenue collection from crypto assets is significant, and SARS is looking to dip into the crypto wallets of taxpayers to recover what is due to them,” Bhayla said.

“However, this can be avoided by taxpayers who want to avoid a ‘head in the sand’ approach and declare their transactions honestly.”

Many taxpayers are not intentionally trying to avoid tax, but they are simply unaware that they need to disclose their crypto assets.

This is specifically the case with disposals from which they derive income or profit. Disposals would include transactions such as selling a crypto asset or swapping one crypto asset for another.

“Ignorance is no excuse, and the failure to disclose such transactions, specifically any gain derived from them, could have serious consequences for taxpayers,” Bhayla cautioned.

“Penalties and interest may be imposed on these outstanding amounts, at percentages as significant as two hundred per cent.”

The tax treatment of crypto assets is in accordance with existing tax frameworks, such as profits being included in a taxpayer’s gross income.

However, it may be included in the taxpayer’s capital gain tax calculations where it can be demonstrated and properly motivated.

No hiding from SARS

Bhayla stressed that each case is reviewed on its own merits and that there is no “one size fits all” approach to classifying crypto asset disposals.

He encouraged taxpayers who have been active in the crypto space and have not declared their crypto transactions to engage with specialist tax attorneys and tax practitioners to ensure their compliance requirements are met.

Such professionals can aid taxpayers with voluntary disclosures, assess their tax liability based on historical transactions, and assist in regularly treating crypto asset transactions.

All this is done while maintaining legal professional privilege (where engaging with a tax attorney) and mitigating risk exposure.

This recommendation comes in light of numerous taxpayers receiving Audit Notices and Letters of Final Demand due to SARS’ improved crypto transaction identification methods.

“This clearly demonstrates the revenue authority’s intention to send a message to taxpayers – comply, or be made to comply.”

“Crypto assets are not invisible to SARS, and where a taxpayer attempts to sweep their transactions under the rug, SARS will see this and take the necessary measures to ensure that they recover what is due.”