The South African Revenue Service (SARS), has announced a move to enforce tax compliance on crypto assets. According to local reports on Wednesday, the country’s tax authority has said taxpayers who hold digital currencies have to declare their holdings to enforce taxation.
As a refresher, the SARS is mandated to collect all revenues due, ensure optimal compliance with tax and customs legislation, and provide a customs and excise service that will facilitate legitimate trade in South Africa.
With this development, the SARS follows in the footsteps of the Federal Internal Revenue Service (FIRS) of Nigeria which made an announcement recently about the introduction of new tax laws regulating cryptocurrency.
Related post: Nigeria’s FIRS seeks new law to regulate cryptocurrency from September
SARS to Tax Crypto Investors
More than 5.8 million South Africans hold crypto assets, yet many have not declared them in their tax filings, according to SARS.
Now, the South African tax authority has said it is engaging with the country’s Financial Sector Conduct Authority (FSCA) to obtain information on registered crypto asset service providers while receiving information directly from the local exchanges.
According to Commissioner, Edward Kieswetter, those who evade tax responsibility make the burden of compliance difficult for other taxpayers. “This is not only unfair to honest taxpayers but also affects the vulnerable in society disproportionately by limiting the state’s ability to deliver social grants and other much-needed social benefits”, he said
Now, SARS is asking South Africans to voluntarily declare their crypto assets, promising to “make it hard and costly for those who are willfully non-compliant.”
Kieswetter adds: “Let all know that technology has enhanced SARS’ ability to root out non-compliant taxpayers, and the SARS will pursue all without fear, favour or prejudice.”
Additionally, Kieswetter confirmed that the SARS is exchanging information with other tax authorities globally through multilateral agreements.
Importantly, the SARS said it is increasing the capability of its audit teams to support enforcement initiatives in addressing crypto compliance, adding that it has increased the use of artificial intelligence, machine learning, and algorithms to process its work.
It is worthy of note that the tax authority recently sent query letters to taxpayers with crypto assets to gain insights into their investments and trading activities and thus assess their compliance.
Read also: Opticash: How a crypto startup with no launched product raised and squandered $700,000
Crypto regulation in South Africa
On 19 October 2022, the FSCA issued General Notice 1350 of 2022 (Declaration) where it declared a crypto asset as a financial product under the Financial Advisory and Intermediary Services Act 37 of 2002 (FAIS Act).
Last December, the FSCA disclosed that over 5.8 million South Africans own crypto assets, indicating that nearly 10% of the population owns some form of cryptocurrency, following a study of the crypto industry and its potential risks to South Africa’s economy and financial sector.
Earlier in April, South Africa’s Financial Intelligence Centre (FIC) issued a draft directive requiring crypto asset service providers to transmit and verify certain identity information and provide documentation when conducting crypto transactions.
In July 2024, FSCA announced that it had received 383 licence applications, with 63 approved and 5 declined due to applicants failing to meet fit and proper requirements. Local reports in July also said the FSCA was cracking down on illegal crypto financial services and investigating 30 cases of entities operating without a licence as part of its efforts to manage the crypto sector in the country.
Now, the SARS is working with the FSCA to provide information on registered crypto asset service providers to access data necessary for crypto taxation.
