The South African Revenue Service (Sars) has made it more difficult for taxpayers to get approval on crypto arbitrage trades using their R10 million a year foreign investment allowance (FIA).
Crypto arbitrage has become a popular way for South Africans to profit from differences in the prices of crypto assets on local and overseas exchanges. That price difference has ranged from about zero to 3% in recent months.
To participate, South Africans are required to purchase crypto assets such as bitcoin on overseas exchanges using either their special discretionary allowance (SDA) of R1 million a year, or their FIA of R10 million a year. They then purchase cryptos abroad and ship them to SA for sale at a higher price.
No permissions are required for the SDA, but South Africans making use of their R10 million FIA require tax clearance from Sars.
Most crypto arbitrage trades are in lots of R100 000 or R200 000, requiring multiple approvals from Sars.
Until recently, those approvals could be obtained by going online and hitting a PIN ‘refresh’ button on the Sars website once the initial FIA approval had been granted. Sars would issue a new PIN each time an approval was sought.
However, Sars recently updated its eFiling system, so that each time the ‘Refresh’ button is hit, the PIN remains unchanged.
In a message sent to clients this week, crypto exchange VALR says this means local banks now have no way of telling the difference between old and refreshed PINs that are “generated to send the same capital originally applied for in an FIA application to an international beneficiary”.
It adds: “The implication of this is that refreshed FIA pins will not be accepted as valid PINs for the purposes of arbitrage trading and an entirely new FIA application will need to be made in order to conduct further arbitrage trading under FIA once the original FIA pin is exhausted.”
VALR CEO Farzam Ehsani says this means crypto arbitrage trades can no longer be conducted on a daily basis, as was the case in the past.
Clients must wait for each FIA application to be approved before trading.
The main cost to clients is the extra time in waiting for these approvals.
‘Opportunity not diminished’
Jon Ovadia, CEO of cryptocurrency prime broker Ovex, says the change to the Sars eFiling system adds time delays, but does not diminish the crypto arbitrage opportunity.
“We never used the automatic PIN renewal system as we know Sars did not like this system [even though it made it available to the public],” he says.
Ovex made FIA applications manually, without making use of the automatic application renewal system previously allowed. This meant its applications were paper-based and slower, and fewer trades could be done in a week.
Ovadia says the change to the eFiling system does little to impact its arbitrage operations, adding: “We’ve been working with Sars on a better system that they are happy with.”