By Thomas Lobban, Tax Consulting South Africa
While the population of cryptocurrency in South Africa has soared in recent years and the past few months in particular, the South African Revenue Service (SARS) is seemingly beginning to play hardball when it comes to outstanding tax liability.
In early June, the South African Revenue Service (SARS) reportedly reached out to independent South African crypto platforms to provide it with information pertaining to its client-base. This came off the back of statements made by the Commissioner of SARS, Mr Edward Kieswetter, that non-compliance in this regard would not be tolerated.
There seems to be good reason for this approach. Individual South African taxpayers have largely been overburdened from a tax perspective and this, among other issues such as pervasive corruption in government, have resulted in a sharp reduction in the willingness of South Africans to comply with their tax obligations. Combined with the erroneous belief that crypto asset transactions cannot be traced upon audit, this means that many taxpayers are still under the impression that SARS will not pick up on crypto tax evasion.
The lack of any meaningful guidance from SARS has not helped the situation either, leaving crypto investors with nothing more than their own best guesses about the correct tax treatment to be applied in each case. Most have very strange beliefs about tax and crypto assets, such as tax only becoming applicable upon withdrawal or crypto not previously being subject to tax at all.
While hesitant to provide guidance on the correct tax treatment in relation to crypto assets in different scenarios, SARS has been embarking on a project to reinvent itself and improve on its information-gathering mechanisms. It is not restricted to South Africa’s borders, either. SARS can request the collection and provision of information in relation to a taxpayer from other revenue authorities globally, as well as request assistance in the collection of tax, in terms of the many tax treaties it has in place. This means that taxpayers should not only concern themselves with what transactions may be visible to SARS, but also to other revenue authorities in different countries as well.
Tax on crypto assets is still not well understood by most South African tax practitioners either. In the overwhelming majority of cases, taxpayers have been advised by a tax practitioner that their crypto profits will be subject to capital gains tax (“CGT”) rather than normal tax. CGT is levied at a lower effective rate to normal tax, but crypto is not subject to CGT in most cases.
An important point to note is that, from this year onwards, it has become easier for South African authorities to secure criminal convictions for tax offences. What must be proved in this regard is not only whether a taxpayer willfully committed an alleged offence but, alternatively, that the taxpayer had acted negligently (i.e., that a reasonable person would have acted otherwise). While we are not aware of any convictions secured yet, one may presume that SARS will soon be looking to make examples. It is thus crucial that taxpayers make sure to meet their obligations and remain compliant.
In order to stay in SARS’ good books and avoid sanction, crypto investors should approach SARS first and declare crypto profits and losses in their returns. For outstanding historic tax liability, there are avenues for correction without the thread of criminal liability; however, the options available to taxpayers become severely limited once SARS notifies them of an impending or potential audit. It is prudent for crypto investors to obtain competent advice from a tax firm, preferably with a strong legal component.