The rise of cryptocurrency has created new opportunities for investors, but it has also introduced complexities in taxation that many have overlooked. As the South African Revenue Service (SARS) intensifies its efforts to ensure that all taxpayers disclose their crypto assets and transactions, it’s clear that non-compliance will soon become far more difficult to hide. A key part of this strategy is SARS’ expansion of its third-party data reporting framework, which will now include crypto traders. This move will allow SARS to identify non-disclosures with unprecedented accuracy, as more data becomes accessible through international cooperation and local compliance measures.
The growing focus on crypto compliance
With an estimated 5.8 million South Africans owning digital currencies, SARS has raised concerns about widespread non-compliance in crypto asset reporting. Although cryptocurrencies have gained massive popularity, many traders have either neglected to declare their assets for tax purposes or are unaware that their crypto dealings fall under taxable income and capital gains.
SARS has emphasized that transparency in tax filings is now a legal requirement, including the disclosure of crypto transactions and assets. In fact, this is one of the first moves towards formalizing cryptocurrency under existing tax laws, reflecting the global trend of bringing crypto into regulatory frameworks.
Third-party data reporting: What it means for crypto traders
SARS’ third-party data reporting system has traditionally focused on areas like banking transactions and investments. Now, this framework is being extended to include crypto traders. In partnership with the Financial Sector Conduct Authority (FSCA), SARS is working to collect information from Crypto Asset Service Providers (CASPs). These providers, such as local crypto exchanges, will be required to report user information and transaction data, giving SARS access to detailed insights on individual traders.
This expansion means that, going forward, SARS will not need to rely solely on voluntary declarations from taxpayers. Instead, they will cross-reference third-party data to identify discrepancies between declared income and actual crypto dealings. For those who have not disclosed their crypto assets, this system will significantly increase the risk of being flagged for non-compliance.
International cooperation: A global approach to crypto taxation
SARS is not acting alone in its efforts to enforce crypto compliance. South Africa has signed multilateral agreements with other countries to exchange data on offshore cryptocurrency holdings. These agreements are expected to be formalized this month, allowing SARS to gain access to information on South African taxpayers who hold crypto assets in foreign accounts.
Through this international cooperation, SARS will be able to identify undeclared crypto assets, even if they are held in offshore exchanges. This initiative aligns with global efforts to enhance tax compliance in the rapidly growing digital currency market.
Advanced technology: Enhancing SARS’ audit capabilities
SARS Commissioner Edward Kieswetter has been vocal about the agency’s increasing reliance on technology to root out non-compliance. Artificial intelligence (AI) and machine learning are now integral tools in SARS’ audit processes. These technologies can track and analyse large volumes of data, flagging potential discrepancies and identifying individuals who may have failed to declare their crypto dealings.
With these advanced tools, SARS has the capacity to uncover non-disclosures more efficiently, making it much harder for taxpayers to evade their crypto tax obligations. The agency’s improved audit capabilities, combined with the new third-party reporting framework, represent a significant shift in the way crypto taxation will be enforced going forward.
Voluntary Disclosure Program: A window of opportunity
For crypto traders who have not yet declared their assets, SARS has provided a window of opportunity through its Voluntary Disclosure Program (VDP). This program allows taxpayers to come forward voluntarily and disclose any previously undeclared crypto holdings or transactions before they are flagged for an audit.
By participating in the VDP, taxpayers can avoid severe penalties and legal repercussions. However, this option is only available before SARS initiates an audit. Once flagged, non-compliant taxpayers will face heavy fines, as SARS has made it clear that evading crypto tax obligations will not be tolerated.
Preparing for crypto compliance
As SARS extends its third-party data reporting framework to include crypto traders, the days of underreporting or neglecting to declare cryptocurrency dealings are coming to an end. The collaboration between SARS, the FSCA, and international authorities means that non-disclosures will soon be easily identifiable.
For crypto traders, this is a critical time to ensure that their tax filings are up to date and compliant with the law. The introduction of AI-powered audits and the expansion of third-party reporting will make it increasingly difficult to hide crypto assets, and the penalties for non-compliance are steep. By partnering with a knowledgeable firm like MMS Group, taxpayers can navigate these new regulations with confidence and avoid the pitfalls of non-disclosure.
If you are unsure about your crypto tax obligations, now is the time to seek professional guidance. Don’t wait for an audit to uncover discrepancies—take proactive steps to ensure your crypto dealings are fully compliant. Reach out to the MMS Group for assistance.