SARS will use tech to catch those who don’t report crypto assets. (Image: Nicola Mawson, with Freepik and GenAI)
Government is clamping down on crypto assets through two new tax regulations that expand reporting on virtual money.
It is also moving to bring tokens under exchange control rules – despite a pending court case on whether apartheid-era forex regulations even apply to crypto.
In one of the state’s key enforcement activities, the South African Revenue Service (SARS) is stepping up its regulation of crypto-currency activity, with two standards set to come into effect on Sunday.
One of these is the Crypto-Asset Reporting Framework developed by the Organisation for Economic Co-operation and Development and published by SARS last February. This comes into effect alongside an expanded Common Reporting Standard, covering a broader range of financial data for automatic exchange between countries.
In a blog post for MaxProf, a tax recovery company, auditor Rahul Maharaj writes that SARS’s enforcement of these globally-recognised reporting standards will “greatly increase its access to information about digital assets”, representing a major advance in formalising crypto within the national tax system.
See also
Crypto exchanges, brokers and specific wallet providers must now gather and report detailed customer information, including user identification, tax residency and full transaction records, like purchases, sales, conversions and wallet transfers, says Maharaj.
This data must be retained for several years and submitted in a prescribed electronic format compatible with SARS’s data-matching systems, Maharaj adds. Financial account reporting now includes digital products and indirect crypto exposure, meaning assets previously held on foreign platforms will no longer escape SA tax oversight, he says.
SARS is expected to rely heavily on automated data analytics to enforce these new rules, with reported crypto transaction data being cross-checked against taxpayer declarations, Maharaj notes. “Discrepancies are likely to trigger reviews, verification procedures, or audits.”
Christo de Wit, country manager at Luno South Africa, notes that SARS already said as early as 2018 that existing income tax principles apply to crypto assets.
Technology lawyer Nerushka Bowan stresses that what changes now is not that crypto becomes taxable – it already is. “What changes is visibility and enforcement. With structured reporting and data matching, SARS will be in a stronger position to identify discrepancies between what exchanges report and what individuals declare.”
Crypto-currency ownership and use statistics for South Africa. (Image made via GenAI)
“The practical consequence is increased non-compliance risk, where transactions are not properly disclosed, including potential penalties and interest,” Bowan adds.
Taxpayers bear the responsibility of substantiating declared figures. “Failure to disclose taxable crypto gains or income may result in penalties, interest, or further investigation,” says Maharaj.
Lucien Pierce, PPM Attorneys director, says South African government departments, especially SARS and Home Affairs, “are rapidly becoming alive to the benefits of leveraging cutting-edge technologies to streamline their operations”. This, he notes, also reduces losses to the fiscus, whether through tax evasion or fraud and corruption.
“One would hope that, in implementing such technologies, they have done their due diligence. Who can forget the Dutch tax authorities who implemented an artificial intelligence-assisted profiling tool that was held to be defective and resulted in sanctions for the tax authority,” asks Pierce.
European news website Politico reported a few years ago that Dutch tax authorities had used a self-learning algorithm to create risk profiles in an effort to spot childcare benefits fraud. However, it violated the European Union’s data protection rule book, wrongly labelled people as fraudsters, and received a €3.7 million fine (R60 million at the time).
The implementation of the new regulations, adds Maharaj, “reflects a broader recognition that digital assets form a permanent and significant part of the modern financial system”.
Crypto-currency will now be treated with the same scrutiny as shares, property, or other financial instruments.
“Digital assets are becoming mainstream investment portfolio components and sit alongside stocks, bonds, property and cash in a diversified portfolio,” De Wit agrees.
“By extending standard reporting practices to crypto, the framework creates an environment that mirrors those of traditional financial institutions, such as asset managers and banks.”
Government’s clampdown on crypto extends to seeking to expand exchange control regulations.
Finance minister Enoch Godongwana said during Wednesday’s National Budget speech that National Treasury will “shortly publish draft regulations under the Currency and Exchanges Act, to include crypto assets in our capital flow management regime”.
This will include governing crypto in regulating the cross-border movement of money, complementing existing rules against money-laundering and fraud, he says.
Robyn Berger, tax executive at Bowmans, says this represents a notable change. “The difficulty here is that there are currently court matters pending, where SARB [South African Reserve Bank] has argued that ‘crypto assets’ are already encompassed in the definition of capital, and the courts have decided otherwise.”
The Supreme Court of Appeal will this year hear arguments on whether apartheid-era, 64-year-old foreign exchange regulations introduced in 1961 can be applied to crypto-currencies − a decision that lawyers previously said could force a redraft of exchange control rules, as government should not try to create laws though the courts.
SARB is appealing a 2025 North Gauteng High Court ruling that blocked its forfeiture of R16.4 million held at Standard Bank, after judge Mandlenkosi Motha found the old regulations had no bearing on digital assets, also citing the central bank’s own 2020 position paper.
Berger says although this is not yet a settled matter, the Budget Speech amendments aim to clarify that crypto assets are officially part of the capital flows management framework.
