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Tax evaders are playing a dangerous game with Sars on crypto assets

A sure-fire way for Sars to gauge that something is amiss, is to look at someone’s lifestyle.
Image: AdobeStock

During a recent panel discussion at the 2021 South African Institute of Taxation (SAIT) Tax Indaba, crypto assets, and the taxation thereof, once again came up as a sensitive topic amongst industry professionals. The five members present for the virtual discussion were Mark Kingon (former acting Sars Commissioner), Keith Engel (CEO of SAIT), Creag Sudding (Associate Director at KPMG), Jacques van Wyk (CEO of JGL Forensic Services) and Jerry Botha (Managing Partner at Tax Consulting SA).

In discussing the intricacies of investigating tax offenders through lifestyle audits, Jacques van Wyk was quick to note that, at a forensic level, the introduction of crypto assets have complicated the investigative process because it challenges tax jurisdictions, which is like policing a borderless world.

While Van Wyk is pro crypto taxation, he believes that people are not taking heed of Sars’ warnings. He urged Sars to utilise their data and to set the necessary examples, which in turn would nudge those who are purposely non-compliant, to re-evaluate their position on the matter.

The pros and cons of data collection

The introduction of the digital age has made it clear that we live in a data-rich environment. While everything can be traced, it is also easy for information to disappear. Tax evaders and career criminals alike have worked hard at finding ways to thwart revenue authorities.

With ample third-party data at their disposal, Sars can view the yacht- and aircraft-base, track credit card transactions and foreign investments. Through mutual information sharing agreements with other countries, they can gain access to an individual’s offshore transactions.

However, crypto asset analysis goes beyond third-party data analysis. The digital information around crypto is layered, complex and requires loads of manpower to examine and rework. Sars is aware of the demand, and the subsequent workforce shortage, to cull through all the data.

Mark Kingon revealed that Sars has gone on a massive recruitment drive, with specific focus on employing forensic auditors and veterans who can assist with upskilling the younger specialists.

Technology is a great enabler because financial investigators can utilise it to gather masses of information, develop profiles or patterns and then take a closer look at the outliers, the things that are not explained. Even social media is an incredibly rich source of information, which means it’s not advisable to show off your new sports car (or crypto gains) while owing money to Sars.

If you are one of the elusive crypto millionaires who cashed in on the global crypto wave, you might have to reconsider the safety of your hiding spot. A sure-fire way for Sars to gauge that something is amiss, is to look at someone’s lifestyle and to see if what they are spending is in line with what they are earning. The burden of proof ultimately falls on the taxpayer to explain any discrepancies.

Understanding Sars’ intent behind enforcing crypto tax compliance

In the discussion, Kingon mentioned Sars’ Presentation on Strategic Intent for 2020 – 2024, in which Commissioner Edward Kieswetter expressed 9 Strategic Objectives from the perspective of taxpayer experience. Kingon drew attention to objective number 5, which states that Sars will:

“Increase and expand the use of data within a comprehensive knowledge management framework to ensure integrity, drive insight and improve outcomes.”

In the official presentation, Sars vows that it is their intent to first pursue voluntary compliance. Where simplifying the processes using data, analytics and artificial intelligence fail to encourage compliance, Sars will employ their comprehensive system of knowledge management to investigate and police non-compliance.

According to Thomas Lobban, Head of Crypto Asset Taxation at Crypto Tax Consulting, local investors are often not open to voluntary compliance. He cautions traders who boast about their crypto gains on social media platforms that it could land them in hot water if Sars were to take note of their feeds.

“Non-compliance is still proving to be an issue in the crypto asset space among South Africans,” says Lobban. “This stem largely from a misunderstanding of the tax laws applicable, paired with the overarching sentiment that Sars is not entitled to tax them on their gains. It is understandable why Sars would embark on a compliance enforcement exercise. In cases where a taxpayer is not able to prove the source of their income used to fund their lifestyles, Sars is forced to dig deeper.”

In an interview after the event, Engel further expressed his concerns about taxpayers who believe they are playing a game with Sars by seeing how long they will get away without paying their taxes.

“Whatever your profits, you are legally obligated to report them. If you don’t report them, it is tax evasion,” Engel reiterated.

“Sars is committed to getting third-party data from the more prominent crypto trading platforms. While Sars is getting this done, people think they can continue to get away with it, but they will get caught two or three years down the road. If those individuals didn’t report the income, Sars can go back forever.

“When they get you, they will want the tax, plus interest and penalties. Then you’re really in trouble.”

The consequences of a lifestyle audit can severely impact your relationship with Sars if irregularities come to light. If you suspect you are not fully compliant, it is wise to disclose your earnings and if necessary, seek relief through the Voluntary Disclosure Programme (VDP). If Sars decides to audit your lifestyle, the VDP window is no longer an option – even after being notified of a possible audit.

Tax Consulting South Africa

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Lifestyle audits sure. Just like the ones we do on prominent politicians.

One rule for you, another one for them. Can SARS explain how JZ can afford millions of legal fees a year?

Or maybe they’re just not interested

This. If there was any accountability on government’s side I’d happily pay the taxes. Instead I’m looking at every possible way to avoid paying tax – why should I fund incompetents’ extravagant lifestyles?

Fully agree. I’ll be happy to do my part if the beneficiaries of corruption are dealt with. We see the corruption articles on a daily basis but hardly ever do they act on it. Instead, a specialized unit to investigate high-net-worth individuals (the same people that can easily leave SA if they feel harassed). I’ll pay some but for the rest, well there are a lot of trustworthy exchanges with no SA footprint

if you don’t give me your money you are too much racisss… you are a guest here you must behave.

These guys threaten the Tax payer/Honest citizens daily but are too scared to go after the Zuma mansion in Dubai plus bank accounts in Dubai and Pakistan.

Plus how often do we hear of politicians buying luxury car collections with department/Tax money?

I have always suspected that there are two sets of SARS rules for Politicians/Absolute Corrupt Politicians and ordinary citizens/Tax slaves.

A few decades ago this came to light in Portuguese revenue service, they actually had a option exempt someone from paying Tax.

I pay every cent to SARS but understand why Tax paying citizens are looking escape the relentless, blind, not fit for purpose, no for SA citizens SARS.

Lets think a bit here, what is Tax?

It is something you pay 33% or up to 46% of your salary and again 15% of everything you buy but get nothing for it.

It is like sharing your lunch with the bully at school else he beats you up.

Sars will employ their comprehensive system of knowledge management to investigate and police non-compliance.

Ja right, like they use such old PDF technology that users were forced to downgrade their readers, now even use a SARS specific reader. You heard the IT specialist lady she came in every day to read the newspaper.

And if they have such comprehensive knowledge why is so much money being stolen from the government wallets and spent on Breitling watches and overseas trips.

First sort out the pilferage of money by the corrupt government before you strangle the goose that lays the eggs.

Comrade you have internalized the opression by wh|te monopoly capital… you must free your mind because we did not fight apartheid to be poor neh.

SARS!!! The F…. enemy of the people!!!

Clearly demonstrated by the threats etc.

How do you have a “Tax Indaba” about “Crypto assets” but the whole panel represents the Tax side of things. Nobody from the Crypto side. That is just a one-sided discussion of 5 fools!!!!

So when will the F….. SARS explain exactly how crypto and capital gain works??? There are many more items that needs clarification. Does that not show the need to have the other side of your F…. indaba also present??? Or are you scared they will laugh at you as you are clearly incompetent to even arrange a proper “indaba” never mid discuss Crypto ???

Then maybe F…. SARS can implement all their smart ideas with their anc handlers!!!

These F…… people TSK!!!!

SARS must first learn how cryptography works and also understand the blockchain. Can’t do e-filing online as browser doesn’t support flash. No time to download Sars browser as Linux not supported. Sars must embrace the 4th industrial revolution.

…..show off life stylers will always get bruised

For SARS to ruffle their feathers is cause for concern but note they are just as concerned they can only really peruse on the major crypto exchanges. Peer to Peer will give them migranes

Anyone who regularly parks their “money” on “bright light” exchanges are either still learning the meaning of “crypto” or think naively the “Federalies” are chickens and not wolves

Bitcoin may be the only desired crypto coin, however there are others for the discreet that in time will be in demand

Tech evolving will not make it easier for revenue authorities. Already A.i is available to “wash” blockchain (ledger trails) origins

Easy, just close your Facebook account folks 🙂

Let big brother poke his nose somewhere else

SARS, borne out of my experience with you, I only have one message for you: GO AND BURN IN HELL FOR ETERNITY. Take old bedwetter with you, he will be hard pressed to wet Hell.

Vatso! sê hulle Koos, sê hulle. Lekker lag ek nou ….

SARS represent the “heavies” who collect boodle on behalf of the gangster state. That’s why they avoid investigating and collecting taxes from the ANC’s top politicians: Zuma is an example. Much easier (and safer) to harass the ordinary PAYE taxpayer. And they hide behind the “confidentiality clause(s)” in the Income Tax Act.

Also note that SARS do not go near the taxi associations either lest the latter lease their “heavies”, i.e. the hit men, on them.

A revenue service whose operational mission depends on invading every aspect of its citizens lives in a “one-way” relentless pursuit of every last cent that could somehow conceivably deemed to be “due” to “the regime”, has lost the plot for fostering buy-in from the citizenry, and has set the stage for it to become “the hated enemy of the ordinary people”.

When a government agency becomes just another form of “secret police” on a mission to spy on, and potentially entrap – with RETROACTIVE authority – the citizenry at EVERY turn of their lives, such agencies cross the line into “despicable”.

SARS has reached this watershed moment.

The blame for the creation of this monster does not lie with SARS – it lies with the Politicians and Bureaucrats – on BOTH sides of the political divide – who ceaselessly worked to create this nightmare, one small grasping additional regulation at a time.

This is not just a SARS problem. Look around you at ALL the organizations that you are involved with. From small to big.

Weak managers and committees start slipping in “extra rules” one regulation at a time.

It’s an insidious disease – the organizational equivalent of cardiac artery plaque build-up.

It has taken DECADES of work by tiny, petty, minds to build this evermore self-fulfilling avaricious monster.

It is the nature of bureaucrats the world over (I give you the US Revenue Service as just another ugly example gone mad. Even more so perhaps!).

Time to slay this beast, and rethink taxation principles from the ground up again, with a clean sheet of paper.

Strong Hint: Do NOT involve “Tax Experts” in this exercise.

… At all!

These are – at an overall national competitive level – unproductive drones and parasites – who have played a MASSIVE part in creating – and then sustaining – this problem in the first place!

Has Zuma “paid back the money” yet, from his Nkandla fire-pool?

If not….then it shows the game is not dangerous (if you are connected).

How close is our (corrupt) government to breaking the “social contract”…?

Crypto is no different from other assets. It is relatively simple to hide income from SARS. SPENDING without detection is however a problem.

Soon any bank that wants to have global correspondent facilities and global card facilities will report the warm bodies connected to all bank accounts. So you could have your cash in LittleIsland Savings & Loans but what is the point if you cannot spend it elsewhere than on LittleIsland. Want to pay for a holiday or a yacht or a charter jet? Tough.

Already transactions over certain flags require reporting and the important ones anyway have registries (planes, yachts, properties, shares) that tax authorities can access.

Not much to worry about SARS and Crypto,

I phoned the Call center they other day to enquire about a notice letter and the person read me the notice letter in English and put the phone down.

Thank you but I can read and write English for the past 47 years.

No lifestyle audits for any of the politically connected that, stole all that 500 billion covid money……
Sars can gf.

Do lifestyle audits on everybody that buys R3m+ homes and R500k+ cars. I know numerous people making 2-10 times my salary but I pay 90% more tax then them…

Why do they always threaten the law abiding Tax payers.
They can not even trace the money Zuma and his cronies transfered legally to Dubai and Pakistan.
Crypto rules!!!!!!

Crypto is the best way for the honest Tax payer/slaves to keep their money.

Crypto is t0o complex for them to Tax 40%, 50%, 60%, 70%, 80%, 90% and 100%

SARS is the income stream for the gangster state. They serve no other purpose. May they all rot in hell

It’s actually very simple for SARS.

Already there are mechanisms and laws in place whereby any money that hits a fiat account outside of South Africa that belongs to a South African is reported to the Reserve Bank and onward to SARS.

They don’t need to know anything about crypto. They just need to list companies dealing in crypto and tax anything landing in a South African account from those companies.

Why would you bring back the money to a SA account when you can just spend the money directly from the foreign account?

You miss the point.

When money lands in your foreign account, it gets reported to the Reserve Bank and to SARS. If you have made a profit, you owe them taxes on that. If you have taken large amounts offshore you are also obliged to declare it and may be subject to tax.

Just because the cryto fans are evading tax doesn’t mean that SARS doesn’t have visibility of it. It just means that they haven’t followed up on them as yet.

But SARS doesn’t play around when it comes to penalties.

End of comments.

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