Sars confirms ability to receive information directly from local crypto asset exchanges, to ensure non-compliance is both hard and costly for taxpayers!

Looking beyond the borders of South Africa, the recent media release from the revenue collector titled “Sars Warns About Crypto Asset Compliance”, highlights Sars’ legal obligation to account for any income or assets held by taxpayers, including crypto assets held on offshore platforms.

To this effect, Sars note in their recent media release:

“…it must be underscored that through multilateral agreements Sars is exchanging information with other tax authorities globally. The provision of offshore crypto accounts will be the subject of a multilateral agreement to be signed by Ministers of Finance in November 2024 which will catalyse the cross jurisdictional exchange of such information in respect of South African taxpayers.”

Crypto Asset Compliance Programme – Sars’ Next Collection Goal

The historically common misconception amongst taxpayers, that crypto profits or gains fall outside the South African tax net has been addressed by the revenue collector and SARB on numerous occasions.

In short, taxpayers must be aware that crypto-related activities, even though on-platform, and not realised for fiat gain, do carry with them stringent reporting requirements, including declaration and payment of taxes due on the benefits derived thereon.

Sars has highlighted that they are in fact aware that many taxpayers are not making these declarations, citing that “more than 5.8m South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin in the world”.

With a pool of uncollected revenue that large, Sars are pushing an increase in capability within their Audit segments, to support efficient and effective tax revenue collections from crypto traders / investors.

“Criminals” in the Crypto-verse

Those who hold, or have ever held, crypto, should certainly not assume that historical non-declaration means that Sars will not look to tax these profits in future.

Not only will a review of this historical transgressions be conducted but should the crypto trader under the radar not comply, severe penalties, or even jail-time is immediately on the cards, per section 234 of the Tax Administration Act, 28 of 2011:

Further, please note that failure to provide requested information to Sars may constitute a criminal offence in terms of section 234 of the Tax Administration Act and may attract severe penalties. (Excerpt from pg.2 of the Sars Request for Information, pertaining to crypto asset transactions)

Practically, this means that even though taxpayers are requested to make full disclosures to Sars on local & foreign crypto transactions, this is more for verification, than data gathering purposes.

While taxpayers falsely assume that what they do not disclose, remains so, they are sorely mistaken and under-estimate Sars’ non-discriminate approach to the eradication of non-compliance, and access to information from Crypto Asset Service Providers (CASPs).

South Africa’s Classification of Crypto Assets

In the realm of South African tax law, crypto assets are considered financial instruments under the Income Tax Act. This means that any profits resulting from dealing in crypto assets may fall within the tax net and be subject to disclosure and liability towards Sars.

As simple as this disclosure may sound in theory, unfortunately, the reality is more complicated. Cryptocurrency transactions are subject to a range of tax regulations, including capital gains tax, income tax, and even VAT in some cases. Moreover, the rules around cryptocurrency taxation are constantly evolving, with different jurisdictions interpreting the law in different ways.

If your crypto assets have been growing in value, it is important to heed the warning that Sars is actively monitoring these developments.

Avoid Penalties, and Prosecution with the Voluntary Disclosure Programme

Now is not the time to hide your undeclared crypto profits or gains - due to the intangible and uncertain nature of crypto-asset transactions.

Aligning with market best practice to seek the guidance of a specialised tax attorney, Sars themselves have noted taxpayers who find themselves in this predicament, must be mindful of the VDP route, for which the key requirement is voluntariness in approaching Sars.

The TAA, as enforced by Sars, provides the framework for the VDP, allowing individuals and companies to disclose previously undisclosed tax liabilities, thereby avoiding harsher legal consequences. It is a crucial tool for those who find themselves inadvertently or intentionally in violation of tax laws. Failure to take advantage of this process can lead to criminal charges, financial penalties, and reputational damage, as this high-profile case highlights.

Written by Jashwin Baijoo, Associate Director and Head of Strategic Engagement & Compliance at Tax Consulting SA