Stricter Crypto Taxation Coming To South Africa
Last updated on November 1st, 2022 at 12:40 pm
We’ve discussed cryptocurrency regulations many times in the past. Most always, heavy, not well constructed crypto regulations almost always have an adverse affect on the space… and if not the cryptocurrency space as a whole, at least within the country imposing the regulations.
There are a few outliers which actually promote positive crypto regulations to encourage the development of this emerging asset class within their borders. We reported on one such country, Portugal previously. They have very favorable cryptocurrency laws.
Given the increased interest in cryptocurrency given all of the economic turmoil across the globe, it is not surprising that another nation is looking at regulations for this space.
We’ve reported on some of these negative regulations which include, the Netherlands looking to ban crypto related businesses and the UK looking to crack down on what they call “dirty money” which they say are in cryptocurrency assets.
The Latest Cryptocurrency Regulations
Now, the South African Revenue Service (SARS) has indicated its interest to increase the tax rate for the country’s cryptocurrency asset holders in the future.
With expectations high that these regulations will be seen soon, many crypto industry experts believe it will harm the quick development of the country’s crypto industry, which is currently the biggest in Africa. As proof of this expansion of cryptocurrency onto the ‘dark continent’ we report about the Crypto City project being headed by singer and entrepreneur Akon in Senegal. This city once complete will be completely run on the local cryptocurrency Akoin.
Mazars, a consulting and accounting firm in South Africa, has warned crypto asset holders to gear up for anticipated stricter tax rules.
South Africa has witnessed massive growth in its cryptocurrency industry for the past 5 years, emerging as one of the most notable cryptocurrency adopters within this period. It is estimated that 13% of internet users in the country either own or use cryptocurrency. Presently, the Bitcoin/ZAR trading volume in South African stands at around $30 Million. The SARS may try to use this growth as an opportunity to gain more revenue from taxpayers who trade cryptocurrencies, as analysts have observed.
SARS May Exploit Tax Payment Options
A partner at Mazar’s audit division, Wiehann Oliver revealed that SARS may exploit several methods for the direct taxing of cryptocurrency holders. He pointed out that cryptocurrency can be a means to avoid tax payments because of its frictionless, anonymous and decentralized transaction method.
“It can be used as a means of tax avoidance in several different ways,” he said.
Olivier also explained that investors can decide to store their crypto assets in hardware or paper wallets rather than depending on custodians like exchanges to provide security to the assets. As a result, it makes it more difficult to track the cryptocurrency movements and confiscate them by authorities.
Call us crazy… but being in control of your own money and not needing a trusted 3rd party is the idea behind cryptocurrency
There are other methods the cryptocurrency holders and traders are using to evade tax on their trading activities.
Different cryptocurrency types can be exchanged for each other and traded through a series of public key addresses and wallets in an attempt to evade taxes and confuse trading activities.
Olivier stated that SARS is presently depending on the integrity of South African taxpayers to add their realized profits from crypto trading as part of their taxable income. Otherwise, it will be very difficult to set up a model that can provide enough statistics to tax cryptocurrency holders.
However, no specific taxation rules have been released by SARS to guide tax payment on cryptocurrency deals. The only direction from the taxation body is for taxpayers to include their realized cryptocurrency gains in their taxable income. It’s not certain how far the taxpayers can go to follow this guideline.
Future Cryptocurrency Taxation
SARS may go further by publishing new rules in the next few years when it has been able to work around a solution on taxing digital assets.
One of those feasible solutions may be the establishment of rules requiring all crypto exchanges to share their transaction info with the taxation body. This will make it harder for crypto holders to evade tax payment on their digital assets.
SARS may also create agreements with banks and offshore cryptocurrency exchanges, such as the agreement foreign institutional investors have. They can choose to share company and individual trading and asset holding data from various countries. So, those who want to move assets out of the country may find it difficult to avoid paying tax.
Olivier has already advised that digital asset businesses should be getting ready for a stricter tax payment method as it will be more difficult to evade taxes in the future.
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