The South African Revenue Service (SARS) has warned crypto holders and traders about the serious consequences of failing to declare their crypto assets on tax returns. Penalties and even jail time could await those who attempt to evade taxes on their digital holdings.
In collaboration with the Financial Sector Conduct Authority (FSCA), South Africa’s financial markets regulator, SARS is seeking information from local exchanges about users’ crypto assets. Although platforms like Luno have indicated that they only share specific client data with third-party service providers, they may be compelled to disclose more detailed information to regulators. Luno, for instance, received a Virtual Asset Service Provider (VASP) license in April, subjecting it to increased regulatory scrutiny.
This heightened level of enforcement spells potential trouble for those who underreport their crypto assets, especially under South Africa’s Voluntary Disclosure Programme (VDP), which allows citizens to self-report their taxable income.
The Advent of Crypto Taxation
Previously, cryptocurrencies were often viewed as a grey area, with regulators across Africa noting widespread tax non-compliance due to the anonymity associated with crypto transactions. However, as governments could not effectively regulate or tax crypto in the past, many people moved assets into digital currencies or engaged in crypto mining without facing tax consequences. South Africa ranks among the top 30 countries globally for crypto adoption.
The country’s move to tax crypto started in 2018, when SARS categorized crypto under income taxes. South Africa’s progressive income tax rates, which adjust based on annual earnings, require taxpayers to pay between 18% and 45% on declared assets. For example, if a taxpayer declares R1,000,000 ($56,850) in crypto assets, they would be required to pay R292,884 ($16,650) in income taxes.
Other African nations, like Nigeria and Kenya, are also exploring crypto taxation. While formal regulations are still in the works, Kenya aims to implement an automatic system that taxes crypto traders in real-time. This is in contrast with South Africa’s approach.
