What New SARS Crackdown Means for Cryptocurrency Investors in South Africa?
South Africa has joined the growing list of countries that have introduced a tax regulatory framework on cryptocurrencies. Read on to find out. The growing list of innovative use cases and benefits of virtual currencies is increasingly making them gain a stronger footing in international business. This has also attracted the attention of tax authorities in leading economies to the possibility of a new revenue stream from these unreported gains. Since cryptocurrencies are specifically intended to facilitate P2P transactions anywhere in the world on an anonymous basis, they open up opportunities to bypass the government tax-paying system. This has prompted financial regulators around the world to establish regulations aimed at bringing the crypto market under their oversight. South Africa is the latest country to clamp down on cryptocurrency investors, with the South African Revenue Service (SARS) having already taken steps to regulate cryptocurrency in the country. Over the last few years, there has been a huge growth in the number of people that buy bitcoin in South Africa. In terms of both market value and volume, South Africa is the second-largest crypto market in Africa. Favorable crypto markets have also helped to drive trading in the country, which, as a result, has attracted greater interest from the South African tax authority. Given how big cryptocurrency has become in South Africa, it was only a matter of time before the government started to think of ways to take advantage of this to generate extra revenue. Details of the new cryptocurrency tax policy  For the past few years, it has been reported that the government has been exploring ways to track and identify crypto account holders and make them disclose all crypto-related transactions that they have made and track the profits made. Recently, the South African Revenue Service (SARS) sent audit verification requests to taxpayers in the country. Included in the request are standard questions as would be expected on taxpayers returns and surprisingly a declaration of all crypto-related trades carried out by the individual for the said period. The following was requested on the audit verification:  The purpose for which the taxpayers purchased cryptocurrency; and  A letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period and bank statements. In simple terms, this means that SARS wants to keep track of all crypto-related transactions carried out by crypto traders and tax their profits. With the latest development, all taxpayers are obligated to declare all crypto-related transactions they made during the tax period. It is worth noting that the tax disclosure obligation does not arise only when a cash balance is withdrawn from a trading platform. There is a major misconception that a tax event only occurs when cryptos are withdrawn and converted into legal tender. SARSs position on cryptocurrencies is that they are subject to tax, depending on the intention with which they are held. If you buy bitcoin, you mined it, exchange it for other crypto or you get paid in crypto, you must declare the purpose clearly on your tax return. Regardless, taxpayers are expected to disclose all transactions that have been made concerning cryptocurrencies. Recall in 2018, the South African Revenue Service (SARS) issued a media statement on cryptocurrencies stating that it does not consider crypto assets as currency and normal tax rules will apply when assessing whether gains in cryptocurrency is revenue or capital gain in nature. Your profits from crypto investment can either be taxed as income or capital tax depending on whether you are an active trader in cryptocurrencies or a long-term investor. If you are being paid with crypto, it will be considered as normal tax. According to TaxTim, a reputable tax platform in the country, the personal income tax rate will apply if an investor is a short-term trader. Capital gains tax applies to long-term investors. All taxpayers are obligated under law to submit documents requested by SARS willfully and truthfully. Failure to correctly disclose requested data or comply with an audit request by SARS is punishable under the law. The growing trend of buy bitcoin South Africa is obvious and SARS has vowed to crack down on non-compliant taxpayers. All taxpayers who fail to declare their crypto-related transaction or submit false information in their disclosure may be liable to a fine or to a jail term of two years. If found guilty of gross negligence, a taxpayer could face penalties more than double the owed amount, plus interest. And if found guilty of tax evasion, the penalties could be more than triple the original amount. With the current situation, trading crypto might seem impossible, however, its not. You can still engage in crypto and bitcoin trading. However, Since SARS has made the crypto community its priority, ensure that you abide by the tax laws that SARS has laid down while you are involved in your trading activities. Calculating taxable amounts from your exchange statements and answering audits honestly, will help ensure that you dont fall victim. It is worth noting that, while this is the first time SARS requested such crypto-related declarations, it is expected to see this kind of approach moving forward from the regulatory body. Investors are advised to keep a record of all crypto-related transactions, contact the exchange platform for a letter to support their claim, and prepare their documents. It is better to stay ahead of the curve and get your tax affairs in order and avoid unnecessary penalties.