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Sars puts crypto exchanges under the magnifying glass

The warning shots were fired after the 2020 tax filing season when taxpayers were asked to disclose if they had cryptocurrency investments.
Image: AdobeStock

For the past few years, many have speculated on whether the South African Revenue Services (Sars) would approach cryptocurrency exchanges directly to disclose their customers’ information. Many crypto investors believed cryptocurrencies existed outside of the reach of the revenue collector. However, this could not be further from the truth – and the proof is in the pudding.

Read: Sars turns on the heat, asks crypto exchanges for certain customers’ information

Following the 2020 filing season, many taxpayers received an information request from Sars, asking about the cryptocurrency held (or not held) by them as well as further related details. The kicker is that these letters had been received, regardless of whether the taxpayer had actually engaged in cryptocurrency investment. While largely unfocused, in theory this approach was effective given that a mistruth or omission in a response is a criminal offence resulting in a fine or imprisonment.

Further, with an additional R3 billion allocated to Sars to improve its technological and information-gathering infrastructure, it is clear that the walls are steadily closing in on non-compliant cryptocurrency investors.

Now, another major development has happened in the crypto space: Sars has reached out to South African cryptocurrency exchanges to request information on their customers in terms of Section 46 of the Tax Administration Act, 2011. This provision allows Sars to require a taxpayer or another person to submit relevant material that Sars requires in relation to that taxpayer.

According to Sars, the purpose behind the request, which has reportedly been sent to AltCoinTrader, Luno, and VALR, is for risk analysis and which would determine whether any further action would be taken. The information requested includes transactional information in relation to certain customers.

Something that taxpayers must understand is that Sars is a creature of statute. It is bound by the rules set out in legislation and has no power to go beyond them. Any action taken by Sars must be within the confines of these ‘rules of engagement’ and no further. This may have led to the conclusion that Sars has no teeth when it comes to cryptocurrency exchanges which may have given some crypto investors a false sense of security.

As recent events have shown, Sars appears to be concerned at the potential for cryptocurrencies to escape the tax net and is doing something about this.

Certainly, Sars is currently embarking on a larger project to identify and pursue non-compliant cryptocurrency investors. While this does not imply that all taxpayers will now automatically be subject to a cryptocurrency audit in every case, it does mean that one can no longer convince themselves that Sars cannot see what happens in cryptocurrency exchanges.

It is well worth remembering that tax is not only levied upon withdrawal of fiat from an exchange. In other words, sales of crypto into fiat, or swapping one crypto for another or even for stablecoins, are taxable events and cannot simply be ignored because funds have not been withdrawn from an exchange. We now know that it would be foolish to assume Sars does not know about these events. Sars is empowered to investigate taxpayer information, obtained from a third party where necessary, and cryptocurrency exchanges are subject to the same laws in South Africa as everyone else. It must therefore be properly considered whether it is legitimate for Sars to request information from crypto exchanges about their clients.

Where a taxpayer has a historic liability, Sars is sure to find out when delving into their transactional records. Once this has been identified by Sars and the taxpayer has been notified, there is little recourse for that taxpayer. The only reasonable course of action is to be proactive, and those taxpayers who are at risk of being ‘found out’ should take the cue and rectify their affairs before it is too late.

Thomas Lobban is legal manager at Tax Consulting SA.

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Great… Now to move to BISQ

We all know SARS is backward with their technology thanks to TOM MOYANE…

At the rate the Technology is moving… SARS will be left in the dark ages…

Catch me if you can on BISQ

Two Words…. (Samourai Wallet)
I just think if they want to start taxing cryptocurrency then we should not be paying tax in fiat currency. I hope Sars has a crypto wallet..!!

Thanks for that!

Agree with you!

Dont only move to BISQ, move period. Following countries have specific laws/guidance/subsidies on crypto tax exemption. Germany, Portugal, Singapore, Malta, Belarus, Slovenia, Hong Kong, Gibraltor, Bermuda and even here in tax hell USA like Texas and Wyoming. South Africans are so untravelled, so behind. Crypto fintech startups are literally being given money from the tax payer. Be like Bezos and Musk-tax is for plebs.

Tax is a necessary part of any modern democracy with services operated by the government. You cannot simply rule out tax, it’s unavoidable. Germany, Portugal, Hong Kong, USA (Including Texas) all have taxation of cryptocurrencies in place, whether it’s as CGT or income tax. Belarus? I wouldn’t put a single penny in a country so political unstable as it currently is.

Countries who don’t tax on crypto likely do not yet have the legal framework yet that enables regulation and taxation. If you want to put your money in a foreign country with no regulation, then go ahead at your own risk.

Cryptocurrencies are not a golden ticket to avoid paying tax, and trying to do so by moving money offshore or failing to declare will likely not work in your favour.

PS: Bezos isn’t someone you should aspire to be like.

Don’t forget that there is a paper trail no matter which crypto platform you use, and if you do those instead of declaring, you may very well run into problems with tax evasion. Not something I recommend.

SARS are probably one of the most efficient government systems in the country, they usually don’t mess around.

agree…you can’t declare one income and not the other. (sorry to say, but in this country your chances are better getting away with murder than tax evasion. )

All of your responses in this comment section are so cuckworthy, why are you so eager to pay money to a government that bends you over at every turn

They cannot even spot a mansion in Dubai, blind as a Bat

Tax the untaxed fringe benefits of all the stolen money from Eskom(and all other SOEs) first Mr Kieswetter. Until you do so neither you or your squeaking puppy ex Judge will have any credibility.

Crypto only really has 2 uses: evading the authorities (think of the drug dealers on Silk Road), and as blockchain tulips.

The first use is now disappearing fast, as the authorities clamp down. Did anybody really think that SARS and the American IRS would just stand and watch their tax take disappear?

I believe this is the natural development of Crypto:
First the governments did not believe it will get traction, now there is a take-up of the technology and governments must try to control it, otherwise it will undermine the very system that governments are built on, i.e. fiat currency.
At the moment crypto is a tool for speculation, but it will evolve and find its place. The game of cat-and-mouse will continue as long as there is a need for decentralized currency (which there is) and the need for governments to keep the status-quo.

Crypto actually has many uses, however your last line as with all tax organs of state is to “wrestle” with this future labyrinth of value or money…its not a FIAT, that corruption can take hold of

Crypto’s that are decentralised pose a problem to tax authorities and crypto’s not traded on an exchange (ledger)a bigger one

Ethereum / ether are centralised and its questionable its part of the Reserve Bank in the US to sow confusion as its based in California

Bitcoin and some others not centralised can be monitored on ledgers but if the owner uses a hardware (dongle wallet) this poses problems for authorities. Tools developed can “fog” the owner

Decentralised cryptos are the future and “bane” for governments wishing to control taxation and currency values

And yet, cash is king with drug dealers. I have never seen a busted drug lord without a lot of cash also confiscated.

Information was not requested on thier customers, it was requested on *specific* customers.
“Sars is currently embarking on a larger project to identify and pursue non-compliant cryptocurrency investors” SARS should not and has not disclosed this information.
“there is little recourse for that taxpayer” Fintech/crypto is extremely complicated, SARS and the taxpayer will BOTH have to be reasonable.
“Being proactive” is not how you approach tax regulation. Clear guidance needs to be given. You pay what you are legally required to.

The wording in this article is very close to being dishonest. Please sell tax advice somewhere else.

”The avoidance of tax may be lawful, but it is not yet a virtue”

Lord Denning English Judge (1899-1999)

Well done SARS, keep digging – you might get more than you bargained for – how did the ”Gupta-Billions” leave the country – Bitcoins?

Through banks and private planes

I agree with this. There is far too much bravado and ego from some people trying to find a way around the system instead of just paying their dues. I don’t have a problem with SARS taxing this, provided it’s not abnormally high and is scaled according to amount, usage and type of earnings/investment.

Cryptocurrency exchanges should also be required to operate as FSPs for protection of the public.

If you take a risk and buy Bitcoin at $10,000 and sell it at $30,000, where in that transaction is there anything to do with SARS or the ANC?

We already have some of the highest taxes in the world, and most of that tax money is stolen. So saying “not abnormally high”, uh, it’s already a problem. But whatever, as long as you can tax people to death and can steal everything, I guess people just need to pay right.

What boggles my mind is that the government via SARS has decided to pursue the hard working taxpayer (not that there aren’t those few taxpayers among the many compliant who are not guilty of tax evasion), but for SARS to pursue the traditional tax base with such aggressiveness for more revenue instead of the real culprits who are behind SA’s dire financial situation, the many thieves and skelms in government structures from the top down where the problem really lies. How about SARS using their new technology they implementing to agressively pursue them and all the monies they’ve unashamedly stolen through the years, instead of pursuing the ordinary taxpayer to replace the stolen trillions. My goodness. It’s amazing one doesn’t hear much about that, except here and there. The government will mask the real problem with all sorts of other supposed reasons, covid, debt, internal systems, apartheid, etc, etc, etc, as to why the country is in the financial and economic condition it is in, but we all know what the main problem is and they too, but maybe they just too embarrassed or need to remain politically correct to say and emphasize the cause. Damnit.

And yet you have people in these comments, not too mention the author of this article waxing lyrical about how we should all be good little taxpayers and disclose every little crypto transaction to our gracious benefactors at SARS

Spot on kaz. Agree with you.

Every institution is broken and looted in SA …and SARS doesnt make an effort to go after the culprits. infact every institution is waiting for dooms day…. Sharmila Batohi… has been getting paid for doing nothing…. what a useless crop.

Dont see it necessary to pay SARS … while JZ and gang roam the streets

“Taxation is theft, purely and simply even though it is theft on a grand colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the state’s inhabitants, or subjects”

Murray N. Rothbard.

My problem with this is simple. When I invest on say Sygnia, Allan Gray or whatever fund manager -> at the end of the year they send me a certificate on gains or losses.

The BTC platforms from what I managed to read, do not give tax certificates, therefore how am I supposed to calculate what tax or when it is due. For this reason, I have never and will never touch crypto. SARS is way to hectic to mess around with in my opinion.

End of comments.

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