Over 5.8 million South Africans now hold such assets, with Southern Africa leading global Bitcoin adoption. However, the South African Revenue Service (SARS) is increasingly concerned about the under-reporting of crypto transactions on tax returns.

In response, SARS has integrated crypto assets into its compliance programmes, working with the Financial Sector Conduct Authority (FSCA) and local exchanges to gather information on registered Crypto Asset Service Providers. The agency has also secured international agreements for data-sharing, with a new accord set for November 2024 to address offshore crypto holdings.

SARS aims to simplify compliance and enhance enforcement against those who are not compliant. For several years now, tax returns have included questions specifically targeting cryptocurrency investments, aimed at tracking trading activities and capital gains or losses.

SARS has not yet issued a detailed interpretation note covering various aspects of cryptocurrency taxation. Key issues include how crypto-to-crypto conversions are treated, whether staking rewards might be classified as interest, and the tax implications of decentralised finance (DeFi) activities. Until such clarity is provided, taxpayers are advised to use SARS’s Voluntary Disclosure Programme, as failure to declare profits could result in severe penalties or criminal sanctions.

The Voluntary Disclosure Programme remains an option for those seeking to rectify non-compliance, but only if they come forward before SARS launches an audit. SARS has emphasised it will pursue non-compliance relentlessly, backed by advanced technology, but have not provided any details beyond that they intend to use artificial intelligence and machine learning instruments. This has raised eyebrows, since AI based systems are generally opaque and unaccountable by nature.

Many cryptocurrency users also remain concerned about the ambiguity surrounding the tax treatment of digital assets. For now, SARS and the National Treasury suggest that gains (and losses) on crypto assets held for more than a year are likely to be treated as capital, much like equity shares under section 9C of the tax code. This provides taxpayers with some clarity and encourages voluntary disclosure, saving SARS the trouble—and cost—of hunting down non-compliance in a sector it is still grappling to understand.

Users also complain that SARS is not issuing clear enough guidelines. Clarity of regulation encourages compliance and reduces the need for expensive investigative efforts. Furthermore, the rise of technologies designed to obscure cryptocurrency transactions makes detection even more challenging.

With new technologies like MoneyBadger and Zapper aiming to increase the use of cryptocurrencies in everyday purchasing, the way in which SARS flags crypto users for tax compliance will need to become more transparent to increase trust in users, or else risk increasing regulatory costs, both to SARS and to taxpayers.

In certain cases, SARS has required taxpayers to explain their cryptocurrency investments and provide documentation from their Crypto Asset Service Providers (CASPs). Further tightening its scrutiny, in June 2021, three of South Africa’s largest CASPs disclosed that SARS had requested information on customers involved in crypto mining, speculation, and investment.

Under the Tax Administration Act, CASPs—like banks, asset managers, and pension funds—are legally obligated to supply such information to SARS when requested. To date, at least 12 South African CASPs have provided data to the tax authority, while SARS has also been auditing individual taxpayers where undeclared gains are suspected.

This means SARS almost certainly already knows whether a given taxpayer owns crypto assets. However, whether they are capable of assessing precisely how much is a more fraught question, and their means of estimating lack transparency.