The South African Revenue Service (SARS) has begun sending audit requests to taxpayers demanding additional information about digital asset trades, according to Businesstech.
Tax Consulting South Africa, a consulting firm, noted that SARS’s request for additional information is a standard preliminary step in reviewing filed tax returns. But this year the agency additionally required:
- specify the purpose for which the taxpayer acquired cryptocurrency;
- provide a letter from the trading platform confirming investments, the relevant trading graphs for the period, and bank statements.
Thomas Lobban, head of the cross-border taxation department at Tax Consulting South Africa, stressed that failing to provide information in response to SARS’s request or submitting false data constitutes a criminal offence in the country.
“This means that a taxpayer who cannot properly disclose their cryptocurrency-related income may be convicted of wrongdoing and face a fine or imprisonment of up to two years,” he added.
According to Lobban, many people believe that tax liabilities arise only when funds are withdrawn from an exchange.
“Unfortunately, this is not the case. From the outset, one should know that all cryptocurrency transactions will have tax consequences,” he added.
In 2018, South African authorities decided to tax profits from all cryptocurrency transactions.
In April last year, the Inter-Governmental FinTech Working Group (IFWG) proposed tightening the regulation of digital assets. Later, the Financial Sector Conduct Authority (FSCA) presented a draft regulation, according to which Bitcoin and other cryptocurrencies are treated as financial products.
New proposals for regulating the industry presented in January 2021.
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