South Africans who own or trade cryptocurrencies should prepare for stricter taxes on their digital currency investment, according to Mazars South Africa audit division partner Wiehann Olivier.
With an estimated 13% of South African Internet users owning or using cryptocurrencies and the South African weekly Bitcoin trading volume standing close to R30 million, it is expected that this sector will not remain unregulated for an extended period.
“To start, the fact that cryptocurrencies were created to allow for anonymous, frictionless and trusted peer-to-peer transaction to be conducted over the internet (including cross-border transactions) means that it can be used as a means of tax avoidance in a number of different ways,” Olivier said.
“There is also the option to rely on a series of smoke and mirrors. Different types of cryptocurrencies can be exchanged for one another and passed through a series of wallets and public key addresses to attempt to confuse the trading activities and to evade taxes.”
An example of this is paper or hardware wallets, which allow investors to store their cryptocurrency locally instead of relying on a custodian such as an exchange to safeguard their assets.
This makes it impossible for SARS to confiscate these cryptocurrencies and very difficult for it to track the movements of these investors.
Olivier said that SARS currently relies on the honesty of South African taxpayers to include their realised gains on cryptocurrencies as part of their taxable income, but this is expected to change in future.
New regulations coming
“SARS has not yet released any specific legislation around the taxation of cryptocurrencies, besides that, taxpayers need to include any realised gains from the trading of cryptocurrencies in their taxable income,” Olivier said.
“However, we believe that SARS will publish new regulations in the coming years to have a more specific focus on these digital assets.”
One of these interventions may include introducing regulations that require all South African cryptocurrency exchanges to share information with SARS, making it more difficult to apply this method of avoidance.
There is also the possibility that offshore cryptocurrency exchanges and banks could have the same agreement with SARS as foreign institutional investors have, whereby they share individual’s and companies’ trading and asset holding data with revenue services from various countries.
“This would again make it more difficult to avoid paying tax by moving assets out of South Africa,” Olivier said.
“Trading companies should consider acquiring the services of firms that can supply confirmation and reporting around its clients’ digital currency audits, well before new regulations are introduced.”