South African Cryptocurrency Traders to Face Stricter Taxes

• Cryptocurrency traders in South Africa have encouraged by Mazars, an accounting and tax consultancy firm to brace for potentially more rigorous taxation.
• The South African Revenue Service (SARS) has not yet released any specific legislation around the taxation of cryptocurrencies, besides that taxpayers need to include any realised gains as part of taxable income.
• South Africa Businesses have been advised by Mazars to brace for stricter control of their digital properties.

Mazars, an accounting and tax consultancy firm has encouraged cryptocurrency traders in South Africa to brace for potentially more rigorous taxation.

According to report by Bitcoin.com 13% of South African internet users possess or use cryptocurrencies. Besides that, the use of blockchain has significantly risen in the country over the last five years.

With all this in mind, Mazars has suggested that South African cryptocurrency traders have to start preparing for more stricter taxes.

Wiehann Olivier, partner at the Mazars Audit Division in South Africa, discusses the possible techniques that the South African Revenue Service (SARS) might implement for direct taxation of cryptocurrencies.

“To start, the fact that cryptocurrencies were created to allow for anonymous, frictionless, and trusted peer-to-peer transactions to be conducted over the internet (including cross-border transactions) means that it can be used as a means of tax avoidance in a number of different ways.”

Investors may store their cryptocurrencies in paper or hardware wallets instead of using a custodian service like an exchange, according to Oliver. Moving into this type of crypto-storage will secure the properties of users and make it “impossible to confiscate and difficult to track their movements”.

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“There is also the option to rely on a series of smoke and mirrors. Different types of cryptocurrencies can be exchanged for one another and passed through a series of wallets and public key addresses to attempt to confuse the trading activities and to evade taxes.”

Currently, SARS is relying on the integrity of South African taxpayers to include their profits on cryptocurrencies as part of their taxable income.

“SARS has not yet released any specific legislation around the taxation of cryptocurrencies, besides that taxpayers need to include any realised gains from the trading of cryptocurrencies in their taxable income. However, we believe that SARS will publish new regulations in the coming years to have a more specific focus on these digital assets. One of these interventions may include introducing regulations that require all South African cryptocurrency exchanges to share information with SARS, making it more difficult to apply the above-mentioned method of avoidance. With that said, it will require SARS to gear itself to ensure that it can collect on what it is owed,” said Oliver.

Futhermore, Oliver adds that there may be a chance that offshore cryptocurrency exchanges and banks will have the same arrangement with SARS as international institutional investors, whereby they share the trading and asset ownership data of individuals and businesses with revenue providers from separate countries.

Implementing this will make it more difficult for consumers of South African crypto-currency to avoid paying tax by transferring assets outside the region.

Harsh tax regulations

Notably, Olivier believes businesses should now begin to plan for stricter control of their digital properties.

“Trading companies should consider acquiring the services of firms that can supply confirmation and reporting around its clients’ digital currency audits, well before new regulations are introduced.”

With the implementation of stricter tax laws a certainty in the coming years, Olivier adds that planning for these measures long in advance could be useful for markets, traders and investors in cryptocurrencies.

“The regulation of digital assets in South Africa could even bring exciting business opportunities for many entrepreneurs and business,” Olivier concludes.