Highlights
- South Africa Tax Agency (SARS) is expanding its tax compliance programs to include crypto assets.
- SARS is collaborating with the Financial Sector Conduct Authority (FSCA) to gather information on crypto users.
- Non-compliant taxpayers face audits, penalties, and possible exclusion from the Voluntary Disclosure Program (VDP).
The South African Revenue Service (SARS) has announced plans to intensify its tax compliance efforts by including cryptocurrency assets in its programs. This decision follows growing concerns about the underreporting of crypto transactions by South African taxpayers.
On October 9, SARS issued a statement confirming that crypto assets must be declared in tax filings, in line with existing South African tax regulations.
The inclusion of cryptocurrencies in the tax compliance programs marks a significant step toward greater transparency. According to SARS Commissioner Edward Kieswetter, the agency has made significant advancements in identifying non-compliant taxpayers, aided by artificial intelligence and machine learning tools.
These technologies allow SARS to closely monitor crypto transactions and assess taxpayers' adherence to crypto compliance regulations.
In a bid to gather information on crypto users, SARS is working closely with the Financial Sector Conduct Authority (FSCA) and crypto asset service providers.
Local cryptocurrency exchanges are now required to report user data to the tax authorities, ensuring that all crypto-related activities are recorded. SARS has also signed global agreements to exchange data on offshore cryptocurrency ownership, further strengthening its capacity to monitor tax compliance on a broader scale.
Crypto Compliance and Voluntary Disclosure Program
As SARS ramps up its crypto compliance efforts, it has urged taxpayers who have not yet reported their crypto assets to participate in the Voluntary Disclosure Program (VDP). The VDP offers taxpayers a chance to declare their assets voluntarily without facing heavy penalties – provided they have not yet been identified for an audit.
However, SARS made it clear that taxpayers who are already flagged for non-compliance will not qualify for the VDP.
“We will pursue all without fear, favor, or prejudice,” Kieswetter said, emphasizing the tax agency's commitment to ensuring all taxpayers follow crypto compliance regulations.
Those who continue to evade taxes on their cryptocurrency transactions risk facing significant fines and possible legal action.
SARS has also issued query letters to taxpayers holding crypto assets, requesting detailed information on their crypto investments and transactions. These letters serve as a way for SARS to gather the necessary data to audit taxpayers and assess whether they have properly reported their crypto holdings.
The use of AI and machine learning will make these audits more effective, helping SARS pinpoint any discrepancies in taxpayers' reported income.
Global Cooperation and Future Regulations
In addition to its national efforts, South Africa’s tax agency has also embraced international cooperation to tackle crypto tax evasion.
The country has signed global agreements that facilitate the exchange of data on offshore cryptocurrency ownership. These agreements are expected to take effect in November 2024, further strengthening SARS's ability to track and tax crypto transactions involving South African citizens abroad.
Local crypto exchanges and registered Crypto Asset Service Providers (CASPs) will be obligated to report user information as part of these compliance measures.
This transparency is expected to improve the tax agency’s capacity to enforce crypto regulations and prevent tax evasion on both national and international levels.
SARS’s move to include cryptocurrency in its tax programs is part of a global trend geared toward regulating the rapidly growing digital asset market.
By collaborating with the FSCA and international bodies, the South Africa Tax Agency is setting the stage for a more comprehensive approach to crypto compliance and tax programs in the future.