The 2023/24 tax year marked a shift in Sars’s approach, with the revenue collector announcing in early October than it will be including crypto assets in its targeted compliance programmes. This announcement comes off the back of a staggering 5.8-million South Africans reported to be engaging in crypto trading and investing, forming a largely untapped source of additional tax revenue collection.

With crypto asset transactions taking a central role in the agency’s compliance focus, Sars is keen to plug any potential tax gaps. In a broader context, this move aligns with global trends aimed at bolstering tax transparency across digital and crypto asset markets.

While Sars has yet to issue formal, comprehensive guidance on how taxpayers should disclose their crypto asset transactions, its recent statements make its stance clear – zero-tolerance on non-disclosure! 

Taxpayers are required to report crypto profits as either capital or revenue, depending on the nature of the transaction. This determination is crucial for correctly calculating and fulfilling one’s tax obligations. Additionally, Sars has signalled its commitment to ramping up compliance enforcement, which includes collaborating with crypto exchanges to monitor and share information, as well as the utilisation of AI, machine learning and specific algorithms to support its enforcement initiatives.

Sars Annual Report Affirms The Growing Focus on Crypto Asset Compliance

In its latest annual report, Sars highlights a renewed commitment to regulating the burgeoning crypto asset market, emphasizing that profits made from trading or investing in crypto assets must be disclosed to Sars. As South Africa’s crypto industry matures, Sars has flagged its focus on enforcing compliance among crypto traders and investors, warning that all transactions—whether crypto-to-fiat or crypto-to-crypto—are subject to tax disclosure requirements. However, the regulatory landscape remains murky, with many taxpayers uncertain about the finer points of reporting their crypto earnings.

South Africa was among the first countries to adopt the Common Reporting Standard (CRS), a system for automatically exchanging financial information across borders, and is now one of 48 countries committed to implementing the OECD’s new Crypto-Asset Reporting Framework (CARF). CARF aims to prevent the erosion of global tax transparency gains by extending CRS principles to crypto assets, thus ensuring that profits from crypto are taxed appropriately in taxpayers’ home countries. Sars Deputy Commissioner, Mr. Scholtz, was recently appointed as one of the co-chairs of the Global Forum’s CARF Group, which will monitor and guide the framework's global rollout.

Despite the momentum in crypto compliance, South Africa’s domestic tax legislation on crypto remains somewhat ambiguous, leaving many investors questioning how to interpret and apply the rules. With no comprehensive guidance yet from Sars, this uncertainty presents a challenge for taxpayers attempting to remain compliant. However, Sars’s clear warnings and active collaboration with crypto exchanges underscore its commitment to addressing this issue. The onus remains on taxpayers to disclose their earnings accurately, with Sars ready to pursue those who neglect their reporting obligations.

For the growing community of South African crypto enthusiasts, Sars’s stance is a reminder of the importance of transparent tax practices. As the tax authority continues to refine its regulatory frameworks, engaging a tax advisor who understands the complexities of crypto compliance could be invaluable for investors seeking clarity and confidence in their tax affairs.

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. 

With Sars ramping up enforcement and crypto exchanges increasingly under scrutiny, taxpayers trading or investing in crypto assets are encouraged to seek professional tax advice. 

The revenue collector has extended an opening for non-compliant crypto traders to engage in the Voluntary Disclosure Programme (VDP), and which engagement is best served with an astute tax attorney and cryptocurrency accountant, being well-versed in navigating this evolving compliance landscape. 

The Tax Administration Act, 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, in both the metaverse and the tangible universe.

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