South African Revenue Services (SARS) Intensifies Scrutiny on Crypto Traders

Crypto traders in South Africa have begun receiving notices from the South African Revenue Services (SARS) indicating that their tax affairs are under review based on data received from various crypto asset exchanges. SARS warns that failure to provide requested information could be deemed a criminal offence under the Tax Administration Act.

A Rigorous Approach to Revenue Collection

Jashwin Baijoo, head of strategic engagement and compliance at Tax Consulting SA, notes that this move is part of SARS’s comprehensive strategy to maximize revenue collection. “For years, crypto asset traders have operated under the misconception that their crypto profits were beyond SARS’s reach,” says Baijoo. “SARS has now made it clear that, just as they can demand transactional records from banks, they can do the same with crypto exchanges.”

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Historical Non-Declaration Under Scrutiny

Baijoo warns traders not to assume that SARS will overlook historical non-declaration of crypto holdings, emphasizing the importance of full disclosure of both local and foreign crypto transactions for verification purposes.

Lack of Clear Guidance from SARS

According to Wiehann Olivier, partner and head of fintech and digital assets at Forvis Mazars, SARS currently lacks automatic access to crypto exchange information and must request this data case-by-case. Olivier expresses concern over SARS’s focus on prosecution without providing clear guidance to taxpayers. “SARS has not clarified when a cryptocurrency transaction is considered capital or income, merely stating that the normal rules apply,” he says.

Challenges in Record-Keeping

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Maintaining accurate records of gains and losses from high-volume crypto trades, especially those involving multiple trading pairs, is challenging. Specialized tools that integrate with exchanges through API or track on-chain data are necessary. Olivier notes that while SARS is reportedly using AI to identify non-compliance, the effectiveness of this depends on the quality of data available.

Resource Limitations

Olivier also highlights the significant resources and manpower required for SARS to investigate and engage with taxpayers effectively, suggesting that the focus may primarily be on high-net-worth individuals.

Exchange Control Regulations

Another issue is the monitoring of exchange control regulations by the South African Reserve Bank, especially when traders use automated bots for arbitrage opportunities between South African and international exchanges. Olivier points out that this aspect has not received adequate attention.

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Future Proficiency in Tracking Undeclared Profits

SARS is expected to become more proficient at tracking undeclared crypto profits using a combination of electronic forensic services, AI, and experienced auditors. This enhanced capability, along with the threat of criminal penalties, is likely to deter traders from evading tax obligations. Access to both local and foreign exchanges will be crucial for SARS to fully grasp the tax implications of crypto transactions.

Source: moneyweb.co

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