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Cryptocurrency traders have started receiving notifications from the South African Revenue Service (Sars) that their tax affairs are under review.
Partners and Senior Associates from Webber Wentzel say the taxman is now turning their attention to crypto traders as an effort to enforce tax compliance within the burgeoning crypto sector.
“Following South Africa’s move to regulate financial service providers who provide financial services related to crypto assets, licensed crypto-asset exchanges are now required to provide certain information to regulators.”
The team says the taxman has cautioned traders that failure to provide the requested information can be seen as a criminal offence under the Tax Administration Act.
“This move underscores the tax authority’s ‘leave no stone unturned’ policy in its pursuit of revenue collection by any means necessary and taxable profits from crypto trading are no exception.”
When it comes to cracking down on non-compliance, it appears the taxman is leveraging artificial intelligence (AI) technology. “However, the full extent of AI’s implementation in identifying non-compliant crypto traders remains uncertain.”
They see this approach as SARS‘ commitment to modernising its enforcement mechanisms to address the complexities of digital asset trading.
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The South African Reserve Bank (SARB) has also aired out its views on exchange control regulations.
“According to the SARB, neither the Currency and Exchanges Manual for Authorised Dealers, nor the Currency and Exchanges Manual for Authorised Dealers in foreign exchange with limited authority, allow for cross-border or foreign exchange transfers for the explicit purpose of purchasing crypto assets.”
From an exchange control perspective, the Financial Surveillance Department is unable to approve any transactions of this nature.
The team adds that SARB does allow individuals to use their single discretionary allowance (an allowance of up to an overall limit of R1 million per calendar year) or foreign capital allowance to acquire crypto assets.
“This provides a legal pathway for South Africans to invest in cryptocurrencies within the boundaries of existing financial regulations, however, the Foreign Direct Investment dispensation does not permit investments in crypto assets.”
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“The increased scrutiny from Sars, coupled with the regulatory stance of SARB, signals a new era of accountability and transparency for crypto traders in South Africa.”
The team advises those engaged in crypto trading to navigate a more complex regulatory landscape and ensure they remain compliant to avoid severe penalties and legal repercussions.
The team from Webber Wentzel is composed of Cor Kraamwinkel, partner, Lenee Green, partner, Lerato Lamola, partner, Margaret Vermaak, senior associate and Mieke Vlok, senior associate.
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