Cryptocurrency regulation in South Africa remains relatively new, but that does not mean you can avoid paying tax on your Bitcoin investment.
It is a legal requirement to pay tax on your Bitcoin earnings, as outlined by the South African Revenue Service (SARS) in 2018.
This is more difficult to enforce than conventional income or capital gains tax, however, as it is logistically challenging for SARS to monitor transactions and balances for South Africans by inspecting the blockchain.
SARS is working to solve this problem by developing tools to detect and thwart cryptocurrency owners who are not paying tax on their investments.
MyBroadband spoke to SARS about its approach to cryptocurrency and the taxation of South Africans who had invested in or actively trade digital tokens such as Bitcoin and Ethereum.
Cryptocurrency tax dodgers will be penalised
SARS told MyBroadband that it was unable to disclose individual cases where customers had been detected and penalised, but assured that South Africans who did not pay tax on their cryptocurrency earnings would face consequences.
“SARS is a creature of statute. It is forbidden by law, especially Section 69 of the Tax Administration Act to share or divulge a taxpayer’s or traders affairs,” SARS said.
“In addition, it is not SARS policy to disclose individual instances where taxpayers have been penalised or not.”
“However, [SARS’s 2018 statement] makes it clear that taxpayers falling foul of their tax obligations with regards to cryptocurrency profits or capital gains will be subject to penalties and interest.”
SARS also told MyBroadband that the biggest challenge when it comes to cracking down on cryptocurrency tax dodging was detection, but said it was working on tools to overcome that problem.
“Conceptually, the taxation of cryptocurrency capital gains or profits is consistent with the taxation of other types of assets, the challenge is mainly in relation to detection,” it said.
“In this regard, SARS is modernising and is working on developing its audit and detection tools to keep pace with the changes in the present technological landscape.”
SARS recently announced a major technology overhaul comprising a large hiring drive and proactive approach to digital business.
SARS Commissioner Edward Kieswetter said that the new focus aims to attract talented professionals to bring the business up to speed with advances in big data, artificial intelligence, and other major technological influences within the tax and customs environment.
Kieswetter added that SARS is modernising its systems and attracting talented executives to fill a number of modern roles, such as chief data scientist, chief technology innovation officer, and chief procurement officer.
“This recruitment process will reaffirm SARS’ commitment to the transformation agenda of our country and the advancement of employment equity and diversity in the workplace,” Kieswetter said.
In September 2019, cryptocurrency exchanges Luno and VALR told MyBroadband that they had not provided SARS with the Bitcoin address for any of their customers.
They both said, however, that they would share customer data with law enforcement or other authorities where doing so was necessary under South African law.