Crypto tax warning in South Africa

The South African Revenue Service (SARS) is issuing warnings to crypto asset holders and traders as the taxman looks to crack down on non-compliance.

This is according to Tax Consulting South Africa, which warned that compliance is the path of least resistance, and non-compliance could lead to heavy financial and legal consequences. 

The firm said that, with Southern Africa witnessing one of the highest uptakes of crypto assets globally, SARS has made it a priority to ensure accurate and complete tax declarations from those holding crypto.

In a press release earlier this month, SARS encouraged taxpayers with various digital currencies, which includes crypto assets, to declare these with its Voluntary Disclosure Programme (VDP) to facilitate compliance.

SARS noted the immense growth in South Africans using digital currencies, particularly crypto assets. Over 5.8 million South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin in the world.

“SARS is concerned that these crypto assets and trades are not being declared on the tax returns of taxpayers,” it said.

“SARS is legally obligated to account for any income or assets held by taxpayers and had previously invited crypto exchanges and those involved in trading or holding crypto assets to disclose related activities on a voluntary basis.” 

“As a follow up, SARS will be including crypto assets into its compliance programmes.”

Some taxpayers in South Africa recently received a notification regarding crypto asset trading activities from SARS.

Tax Consulting SA provided an example of this notification, which reads: “The purpose of this letter is to remind you to disclose your tax position in relation to the crypto asset trades that you may have made.”

“We have received information from crypto exchanges that indicate you may have engaged in trades and may have omitted to correctly disclose this on your returns.”

The firm said this notification underlines that SARS has received transaction data from crypto exchanges, revealing undeclared trades by taxpayers who may have omitted to correctly report these on their tax returns.

“SARS is actively collaborating with both local and global platforms to identify crypto traders and investors who fail to disclose crypto-related profits,” the firm said. 

“The agency’s collaboration with the Financial Sector Conduct Authority (FSCA) and local crypto exchanges allows it to track registered Crypto Asset Service Providers (CASPs) and obtain transaction details for South African taxpayers.”

According to SARS, crypto transactions are subject to tax whether they involve trading or constitute disposals of investment assets. 

For traders, crypto profits are typically regarded as taxable income. Those holding crypto as investments are liable for capital gains tax (CGT) on gains exceeding the annual CGT allowance. 

SARS Commissioner Edward Kieswetter has also emphasized that the agency is committed to making compliance straightforward and cost-efficient, but will be “hard and costly” on those who choose to evade their obligations.

“Failing to declare crypto gains or income could lead to severe consequences, including penalties, interest, and potential criminal sanctions,” Tax Consulting SA warned.

Therefore, to help taxpayers regularize their crypto disclosures, SARS recommends the VDP.

This programme is a mechanism for individuals to correct past omissions without penalties, except for cases involving gross negligence or intentional tax evasion. 

However, eligibility for the VDP depends on approaching SARS before an audit is initiated. 

“Taxpayers should consult experienced tax attorneys to ensure their applications meet the rigorous standards of the Tax Administration Act, as this could reduce procedural risks,” the firm said.

It urged taxpayers to declare any previously undisclosed crypto income or gains within 21 days of receiving a SARS notification. 

If not, SARS may initiate an audit and impose penalties, interest, and potentially more severe actions. 

Kieswetter previously warned that SARS will pursue all “without fear, favour or prejudice”.

Tax Consulting SA said this underscores SARS’ intent to use technology, artificial intelligence, and data algorithms to identify and pursue cases of non-compliance across all platforms.

“With SARS’ enhanced enforcement measures and a broad data-sharing network, this serves as a wake-up call to crypto traders and investors,” the firm said. 

“Proactive compliance through full disclosure is no longer optional; it’s essential.”

This article was first published by Daily Investor and is reproduced with permission.