The South African Revenue Service (SARS) has declared that it will be incorporating crypto assets into its compliance initiatives, urging taxpayers to be transparent about their cryptocurrency dealings and investments. The tax authority has raised concerns over the failure of taxpayers to report their crypto assets and transactions in their tax filings, despite the legal mandate to disclose all forms of income and assets. SARS has reiterated its call for crypto exchanges and individuals engaged in crypto activities to come forward voluntarily with information about their operations.
In response to these concerns, SARS is bolstering the capabilities of its audit teams to better enforce regulations surrounding cryptocurrency investments and the taxation of profits. The agency is enhancing its operational efficiency by integrating advanced technologies such as artificial intelligence, machine learning, and algorithmic tools. SARS has acknowledged its proactive approach in sending out inquiry letters to individuals holding crypto assets, aiming to gather more information about their investment activities and to evaluate their compliance with tax laws.
The Financial Sector Conduct Authority (FSCA) of South Africa, having conducted an analysis of the cryptocurrency industry and its potential risks to the nation’s economy and financial systems, revealed that approximately 5.8 million South Africans possess crypto assets. This figure suggests that close to 10% of the population has some form of cryptocurrency holdings.
In 2022, the FSCA classified crypto assets as financial products under the Financial Advisory and Intermediary Services (FAIS) Act, in light of the growing concerns over risks and fraudulent activities associated with cryptocurrencies. SARS is now collaborating with the FSCA to obtain information on registered crypto asset service providers and is receiving data directly from domestic exchanges. The tax authority is keen to emphasize that the majority of taxpayers and traders are law-abiding and that its objective is to support them in fulfilling their legal tax obligations.
SARS is committed to clarifying these obligations and streamlining the compliance process for taxpayers. The agency is actively participating in international information exchanges through multilateral agreements to enhance transparency and compliance. Furthermore, SARS has announced that the management of offshore crypto accounts will be facilitated by a multilateral agreement, which the finance minister signed in November. This agreement is designed to enable the exchange of taxpayer information across different jurisdictions.
In its regulatory efforts, the FSCA is taking action against unauthorized crypto financial services, currently investigating 30 cases involving entities operating without the necessary licence. As of July 2024, the FSCA had processed 383 licence applications for crypto asset service providers, approving 63 and rejecting 5 on the grounds of applicants not satisfying the fit and proper criteria.
In a related move, the Financial Intelligence Centre (FIC) of South Africa issued a draft directive in April 2024. This directive mandates crypto asset service providers to collect, verify, and maintain specific identity information and provide documentation for cryptocurrency transactions, reinforcing the country’s commitment to regulating the crypto sector and ensuring compliance with international standards.
