Crypto tax crunch in South Africa

South Africa is undergoing a significant regulatory shift regarding cryptocurrency to enhance compliance with financial regulations, particularly tax matters.

This ‘crypto compliance crunch’ has been driven by the need for clear guidelines to protect consumers and ensure the required tax is paid.

Last year, the Financial Sector Conduct Authority (FSCA) released a study that was conducted to better understand the crypto market in South Africa.

This study was undertaken as part of efforts to gather knowledge as to how the sector can be regulated and incorporated into the traditional financial system.

“There has been a movement away from a ‘wait and see’ approach to more active regulation. We plan on regulating the space,” the head of the FSCA’s fintech division, Awelani Rahulani, said last year.

Following the study revealing the relatively widespread crypto adoption in South Africa, the FSCA has almost been forced to act.

“It will place us in a position where we know how we could respond in terms of our regulatory frameworks, licencing of products, and supervision,” Rahulani said.

“We are monitoring the sector very closely and definitely have the enforcement within the organisation.”

With new regulations like the Crypto-Asset Reporting Framework (CARF) coming into play by 2027, things are expected to change, Kuda FX CEO Gilbert Punt said.

The CARF, which will be introduced by the Organization for Economic Co-operation and Development (OECD), is anticipated to significantly enhance transparency in crypto transactions by implementing global reporting requirements for crypto providers.

It covers many digital assets, including cryptocurrencies, stablecoins, and NFTs, and requires exchanges and intermediaries to report user transactions and identities to tax authorities.

The OECD considers the characteristics of crypto assets, which enable transactions without traditional financial intermediaries, to be a significant development in the tax landscape, Punt said.

Under this new framework, crypto holders and businesses must report their crypto assets and transactions to SARS.

CARF seeks to establish a comprehensive regulatory framework for crypto asset reporting and taxation in South Africa, providing clear guidelines for taxpayers to ensure compliance.

“In the future, crypto exchanges and intermediaries will likely be required to report transaction data directly to tax authorities, making it harder for investors to avoid reporting their crypto income, as tax authorities will have more visibility into their activities,” Punt said.

“For investors, this means they’ll need to ensure their records are accurate and compliant, as authorities will have access to more detailed information.”

As regulations tighten over the next few years, the emphasis will be on transparency, making it more important for investors to stay on top of their tax reporting to avoid penalties.

While crypto is already taxable in South Africa, this change would formalise how it is treated under existing financial laws, offering more clarity on various tax matters.

It would also align crypto with traditional financial markets, making tax treatment more transparent and consistent, but the overall tax burden may not change much beyond what’s already required under current laws.

There’s much anticipation in the tax fraternity about the upcoming guide on the tax treatment of crypto assets, currently being developed by the South African Revenue Service (SARS).

The bulk of the document is due to address the technical aspects of crypto asset transactions, analysing these transactions from the date of acquisition to the date of disposal.

Importantly, it will include SARS’s views on the tax consequences related to these transactions, Punt said.

It’s said that numerous examples to assist and clarify the tax treatment of these transactions for taxpayers will be included. Although currently under review, once the document is completed and approved, it will be published for public comment.

By promoting cross-border cooperation and increasing scrutiny of centralised and decentralised transactions, CARF aims to reduce anonymity in the crypto space, curb tax evasion, and ensure compliance with worldwide tax regulations.

Overall, the CARF implementation is expected to provide much-needed clarity and transparency for crypto holders and businesses.

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