Big SARS crypto crackdown

The South African Revenue Service (SARS) is cracking down on cryptocurrency traders in the country, and it is using artificial intelligence (AI) to identify those who aren’t compliant.

Speaking to 702, strategic investment and compliance head at Tax Consulting SA, Jashwin Baijoo, said SARS not only has access to all banking records but also the trading logs from cryptocurrency trading platforms.

Many South African crypto traders have for years traded with the misconception that their dealings fall outside of SARS’ domain.

However, SARS has confirmed that it may demand transactional records from cryptocurrency exchanges.

Baijoo explained that when SARS requests an audit for an individual, the letter it sends is now accompanied by a set of supporting document templates that the taxpayer must complete and comment on.

“One of those is a transactional log of all bank transactions. SARS inserts a column saying ‘put your comments in here’,” he said.

“You can see that’s being processed by AI because the narrative from the bank statement is still there.”

He added that this appears to be required when SARS has detected a risk. The letter taxpayers receive will say risk detected, but SARS doesn’t say what the risk is.

“That’s when taxpayers need to lawyer up because there’s something that Sars has directed. As soon as you get that notice, changes are SARS is coming after you for some degree of non-compliance,” said Baijoo.

“It could be a transaction that was maybe an inbound payment and not correctly declared five years ago, or maybe it’s R20 million that you hold on Luno.”

“They do have access to all your bank statements from all banks in all countries, and they have access to the trading logs from your crypto trading platform,” he added.

Regarding non-compliance surrounding cryptocurrency, he said it is important to differentiate between crypto traders and crypto investors.

Edward Kieswetter, commissioner at the South African Revenue Service

Baijoo said an investor, for example, would acquire a crypto asset such as one Bitcoin and hold onto it for an extended period with the intention of selling that whole Bitcoin.

Comparatively, a trader would purchase a Bitcoin and frequently transact with the entire Bitcoin or pieces of it.

“Where there is an investment intent, which is confirmed, there is your capital gains tax implication,” said Baijoo.

“On the other hand, where is it more akin to trading stock and a second stream of income from ongoing transactions, that is then treated as revenue in the hands of the taxpayer and taxed at their marginal rate.”

Baijoo also said SARS has been successful in implementing AI-powered automation processes for data-driven insights, which forms part of Sars’ compliance programme.

Dubbed SARS Electronic Forensic Services, the division is coupling with Sars’ audits, effectively bolstering audit capabilities to deep-dive and use the commissioner’s discretion where needed to wave the prescription of investigation and reopen tax periods through data-driven insights.

SARS announced the start of the 2024 tax season in early June 2024, with new targets in its crosshairs, including crypto traders and crypto-related assets.

The South African Income Tax Act recognises crypto assets as financial instruments, meaning that any resulting profits fall into SARS’ domain.

In the past, these traders and asset holders haven’t had to declare any profits from these dealings.

A common misconception among the crypto community is that a “taxable event” only occurs upon the sale of a crypto asset, which results in the realisation of a profit or gain.

Any sale or disposal of crypto assets is likely to be considered a taxable event.