Sars eyeing crypto deals now worth R6.5 billion
ALONG with the rest of the world, South Africans have shown an appetite for cryptocurrencies. Although the size of the market is unknown, Coinmarketcap provides a figure of $210 billion (about R2.95 trillion) for the global market and about R6.5bn for the South African market.
What is clear is that the South African Revenue Service (Sars) has cryptocurrency trading in its sights.
Bitcoin and other cryptocurrencies have notched up huge gains in the past year. Bitcoin gained about 224 percent, for example. Given these returns, it’s unsurprising that South Africans are looking at crypto as an investment opportunity, but few realise the tax implications of such a move.
As with any other asset class, investors must understand their tax obligations in relation to their crypto investments, and plan accordingly. If they do not, they could find themselves facing an unwelcome tax bill down the line.
Sars’s interest in the possible tax revenues to be gained from cryptocurrency have been strengthened by this year’s Budget, in which Finance Minister Tito Mboweni raised the budget allocation to Sars for the year by R3bn.
High-net-worth individuals, offshore investors and cryptocurrency investors have explicitly been targeted as sources likely to yield much of the extra tax Sars seeks to collect off the back of this additional budget allocation. However, many taxpayers are oblivious of the fact that trading in cryptocurrency renders them liable for tax, or how and when tax is levied on their cryptocurrency gains.
Depending on how and why the trades are conducted, some crypto transactions could be deemed to be capital in nature and thus liable only for capital gains tax. However, other transactions could be deemed to be revenue-earning in nature.
Based on our work with clients, it’s clear that a major misconception is that a “tax event” occurs only when the cryptocurrency is withdrawn and converted into legal tender. But that’s not true. If a trade is made between, say, Bitcoin and Ethereum, the notional profits of that transaction would also be taxable.
Although there is no legislation forcing cryptocurrency platforms to report on their clients, outside of the general provisions of the relevant tax Acts, such as financial service providers are required to do so, and the walls are closing in fast.
Sars has already begun asking for information on crypto transactions on audit letters issued to taxpayers, and this means that non-compliant taxpayers will either have to lie, and risk incurring further penalties and back tax later, or reveal their trading history. Not providing accurate answers constitutes a criminal offence.
In addition, Sars is investing heavily in its IT capabilities, which will enable it to analyse financial and transaction data more effectively and identify transactions in and out of crypto platforms. Using foreign bank accounts is not a solution either, because South Africa is party to numerous agreements that enable automatic reporting between jurisdictions.
We all create digital tracks in our online activity, and there is really no place to hide, and Sars is adopting a zero-tolerance approach to all tax evasion.