According to a report, the South African Revenue Service (SARS) has sent out audit requests to taxpayers asking them to disclose their cryptocurrency trades and purchases. Taxpayers that fail to correctly disclose their income from bitcoin or other cryptocurrencies may be “liable to a fine or imprisonment for up to two years.”
SARS Tracking Non-Compliant Taxpayers
In the report, which is based on statements made by Tax Consulting South Africa, cryptocurrency traders are now required to state the purpose for purchasing the digital assets. In addition, crypto traders must submit a “letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period and bank statements.”
However, as Tax Consulting South Africa observes, this changed approach by SARS could spell trouble for taxpayers. According to the tax consulting firm, “it is no longer material whether the taxpayer concerned had justification for such non-disclosure or false statement made.” Further, this change to the audit request process means “SARS is actively cracking down on non-compliant cryptocurrency traders in South Africa.”
“It is feasible to understand that SARS is in the process of ensnaring culpable taxpayers who have not disclosed their cryptocurrency-related trading profits and/or losses,” says Tax Consulting South Africa.
The organisation surmises that the audit requests are the “primary weapon in SARS’ arsenal and the walls are closing in on non-compliant cryptocurrency traders.”
New Paradigm Needed
Meanwhile, in his reaction to SARS “giving cryptocurrencies their due attention”, Ben Zhou, the CEO of Bybit, a leading crypto derivatives exchange, says this approach “leaves something to be desired.” Zhou explains:
The decentralized nature of cryptocurrencies represents the future of money and requires a paradigm shift from current thinking. Proposals of a crypto regulatory framework should incorporate regulatory technology (Regtech) and crypto-native solutions such as smart contracts, and not default to the old standard that is showing its age in the age of digital payments and Central Bank Digital Currencies (CBDC).
In the meantime, Tax Consulting South Africa is urging the country’s crypto traders who may not have disclosed their purchases to seek guidance. The organisation adds that “even if you have not purchased cryptocurrency in the past, you should proceed with caution when responding to an audit request.”
What do you think of SARS’ new cryptocurrency taxation approach? Tell us what you think in the comments section.