SARS is increasing its scrutiny of crypto traders by issuing tax notices and clarifying exchange control regulations. Traders must immediately comply to avoid penalties.
Recent developments have seen the South African Revenue Service (SARS) turn its attention toward crypto traders, who are now receiving notices that their tax affairs are under review. These notifications are based on information obtained from various crypto asset exchanges, signalling a significant escalation in SARS's efforts to enforce tax compliance within the burgeoning crypto sector. Following South Africa's move to regulate financial service providers who provide financial services related to crypto assets, licensed crypto-asset exchanges are now required to provide certain information to regulators.
SARS has cautioned traders that failure to provide requested information could be deemed a criminal offence under the Tax Administration Act. This move underscores the tax authority's 'leave no stone unturned' policy in its pursuit of revenue collection by any means necessary and taxable profits from crypto trading are no exception.
To crack down on non-compliance, SARS appears to be leveraging artificial intelligence (AI) technology. However, the full extent of AI's implementation in identifying non-compliant crypto traders remains uncertain. This innovative approach reflects SARS' commitment to modernising its enforcement mechanisms to address the complexities of digital asset trading.
The South African Reserve Bank (SARB) has also clarified its stance on the matter, particularly concerning exchange control regulations. According to the SARB, neither the Currency and Exchanges Manual for Authorised Dealers, nor the Currency and Exchanges Manual for Authorised Dealers in foreign exchange with limited authority, allow for cross-border or foreign exchange transfers for the explicit purpose of purchasing crypto assets. From an exchange control perspective, the Financial Surveillance Department is unable to approve any transactions of this nature.
However, SARB does allow individuals to use their single discretionary allowance (an allowance of up to an overall limit of R1 million per calendar year) or foreign capital allowance to acquire crypto assets. This provides a legal pathway for South Africans to invest in cryptocurrencies within the boundaries of existing financial regulations, however, the Foreign Direct Investment dispensation does not permit investments in crypto assets. While this provides some clarity for natural persons the position of juristic entities remains challenging.
The increased scrutiny from SARS, coupled with the regulatory stance of SARB, signals a new era of accountability and transparency for crypto traders in South Africa. Those engaged in crypto trading must now navigate a more complex regulatory landscape, ensuring they remain compliant to avoid severe penalties and legal repercussions. The era of flying under the radar is swiftly coming to an end, and traders must adapt to these regulatory changes to safeguard their financial interests.
