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With the Bitcoin (BTC) and crypto market rally creating countless crypto millionaires worldwide, various governments have already initiated steps to boost their state coffers by going after income derive from cryptocurrency transactions. That’s exactly the case of South Africa as its tax agency will now reportedly target crypto investors to boost its revenue collection.
The South African crypto market is one of the largest in the world considering the rise of the adoption of digital assets in the country. Understandably, the South African Revenue Service (SARS) is now setting its sights on cryptocurrency investors, alongside high net worth individuals and offshore investors, to boost revenues, according to Thomas Lobban, legal manager, cross-border taxation at Tax Consulting South Africa, BusinessTech reported.
“Bitcoin and other cryptocurrencies have notched up huge gains in past year and more—Bitcoin gained approximately 224% in 2020, for example,” Lobban said. “Given these returns, it’s unsurprising that South Africans are looking at crypto as an investment opportunity, but few realize the tax implications of such a move.”
The problem is that some crypto investors are not aware of how much and when a tax will be levied on their crypto-related gains. This could become problematic for these taxpayers in the future.
“As with any other asset class, investors must understand their tax obligations in relation to their crypto investments, and plan accordingly,” Lobban added. “If they do not, the chances are they could find themselves facing an unwelcome tax bill down the line.”
The tax expert explained that some transactions would be considered capital in nature and would only be imposed a capital gains tax. However, some are considered revenue-earning in nature and would have to follow the corresponding tax rate.
“Based on our work with clients, it’s clear that a major misconception is that a ‘tax event’ only occurs when the cryptocurrency is withdrawn and converted into legal tender, but that’s not true,” Lobban explained. “If a trade is made between, say, Bitcoin and Ethereum, the notional profits of that transaction would also be taxable.”
He also revealed that SARS has started requesting information on crypto transactions it is audit letters to taxpayers. The tax agency has also beefed up its IT capabilities enabling it to “analyze financial and transaction data more effectively, and identify transactions in and out of crypto platforms.”
