SARS warns Crypto traders: Declare profits or face penalties
SARS is ramping up efforts to track cryptocurrency traders, warning South Africans that undeclared crypto profits will no longer go unnoticed. With around 5.8 million SA citizens holding digital assets, SARS has launched a compliance initiative using third-party data and AI tools. The voluntary disclosure program offers a way for non-compliant taxpayers to avoid severe penalties, but those flagged for audits face fines of up to 200%. SARS Senior Manager Bernard Kruger spoke to BizNews editor Alec Hogg.
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Extended transcript of the interview ___STEADY_PAYWALL___
Alec Hogg (00:06.008)
Earlier this week, SARS issued a statement to warn those who've been playing in the crypto markets that they will be detected. So if you've made money out of Bitcoin or other cryptocurrencies and South Africans seem to love this area, then be aware that you need to disclose it. We have with us Bernard Kruger, who is the business area lead at South African Revenue Services.
Alec Hogg (00:37.036)
Thanks for joining us, Mr. Kruger. How popular are Bitcoin and other cryptocurrencies in South Africa?
Bernard Kruger (00:46.207)
We've seen an increase in crypto assets and the space and the transactions and so on since 2018. So currently the indication is that about 5.8 million people is holding crypto assets.
Alec Hogg (01:05.09)
That's a lot of people, five, 6 million people, 10 % of the population. How come it's so big?
Bernard Kruger (01:15.302)
I think the uncertainty in the market in 2020 with COVID and so on, think some people that uncertainty for some people to invest in crypto assets. That's basically what we can see.
Bernard Kruger (01:39.315)
And also I think there's a view that crypto assets, the profits to be made there, this opportunity, and I think that this is we've seen from a source perspective.
Alec Hogg (01:54.54)
Well, Bitcoin has done well, but I guess a lot of people who are trading in it might be unaware that SARS has their number.
Bernard Kruger (02:07.923)
Yes, might be. We've done it in 2021. We've done a crypto asset compliance exercise. What we've seen there is we've got some information from the crypto asset exchanges, some data, and we have foreign investment allowance information.
which we could use to determine what is the compliance levels of crypto assets, all this. So what we've seen is that it's less than 10%. But the point that you're making is that we do have the number in terms of we're getting data from third parties and we can use that data then to check against the returns, the returns that was submitted.
and we can do some actions obviously like compliance actions and so on that we can institute based on the information that we get from that.
Alec Hogg (03:21.452)
Just explain to us if you would, what a compliant taxpayer would be doing if they were trading or investing in Bitcoin.
Bernard Kruger (03:31.827)
Yeah, when we've done the compliance exercise, we've looked at the four pillars of compliance. We looked at that you submitted it, or firstly, are you registered? So some of what we've seen is that some people, that information that we got from the crypto assets exchanges, they were not registered. Then also we're looking at the
Do you submit your returns and do you declare your crypto asset profits and losses? And lastly, we looked at debt. Are you paying for the debt? So all those four pillars were then considered when we've done the compliance levels. So if you, for a crypto asset person, they would then be required to declare the profit and losses they're making on
on the transactions and that is then should be then reflect in the returns. Some of it might be capital gains but others the it's trading income depending on the frequency of those those transactions and obviously you know basically frequency with they they they do defy transactions.
with crypto to crypto transactions, that type of thing will then determine whether it's going to be capital or trading income.
Alec Hogg (05:09.016)
And let's just say somebody who is now finding out that they have been monitored, but they probably haven't been told about it yet. How do they come clean?
Bernard Kruger (05:23.061)
I think they should go back and have a look at the returns. What did they declare? Did they declare what they had to declare? Did they declare it as income, if it's assessed whether it was capital or income? And then we've got the voluntary disclosure program. They can engage SARS or…
apply for a voluntary disclosure, get into that program to come and declare if they are under declared or if they need to get the affection in place.
Alec Hogg (06:09.42)
So if somebody's been trading, let's say for the last three years, they haven't disclosed anything because they're under the impression that SARS doesn't know about it, or maybe they believe that it's not taxable. There is a voluntary program. Will they still be fined? Will they still have big penalties to pay if they come forward on that program?
Bernard Kruger (06:33.471)
There's probably going to be penalties, but the penalties is much less than, let's say, we auditing the person. And the voluntary disclosure program will only be applicable as long as you come forward yourself and come and declare what you didn't declare. But if we instituted or selected you for an audit, then that…
You can't come forward and make use of the voluntary disclosure program at that stage.
Alec Hogg (07:11.096)
So if you selected for an audit, you should probably know that SARS knows more than you think it does.
Bernard Kruger (07:18.335)
That's correct.
Alec Hogg (07:21.61)
And for people who are now wanting to go forward and invest in crypto assets in Bitcoin, when do they become liable to pay on that? Let's just say they bought a Bitcoin beginning of this tax year and it's gone up, but they haven't sold it. They haven't traded in it. When would they be liable to pay taxes on the gains?
Bernard Kruger (07:46.642)
It's when there's a taxable event taking place. I said let's say there's a crypto to crypto transaction. You're buying a crypto from the current crypto that you hold that would then trigger a taxable event or decentralized finance, DeFi activities might trigger a taxable event.
or you decide to just sell the crypto and take the money or transfer it to fiat then that will also trigger a taxable event.
Alec Hogg (08:29.251)
So if I understand correctly, if you bought a lot of Bitcoins when they were very cheap, many years ago, and you've held onto them and now they're at $60,000 and you decide to cash in some of your chips, just know that you're going to be taxed on that. How would you be taxed? How do you determine? You did mention earlier about income and capital gains. How has that differentiated?
Bernard Kruger (08:56.842)
Yeah, so crypto assets or crypto is seen as an asset. So the normal asset rule will apply in terms of taxation. So let's say you like in your example, you mentioning that you've got one crypto assets of $60,000 and bought many, many years when it was cheap.
and that's the only transaction obviously that would then constitute a capital gain because you didn't trade, there isn't frequent trades but let's say you frequently trade, you traded frequently with with that assets buying, selling all the time based on how the market is acting then that would definitely be
in my mind, be an income that will be seen as a trading profit and you'll be taxed according to that.
Alec Hogg (10:05.016)
So that will go on top of what are the other income that you've earned in the year, not a capital gain. Mr. Kruger, there a lot of people I'm sure who listening or watching and saying, yeah, but I know that crypto is untraceable and I've done it through my offshore allowance and I've done it through a crypto exchange overseas. Have you got a message for them or are they pretty, are they going to be safe in their mind?
Bernard Kruger (10:33.993)
Now, definitely there's a message. The message is that SOS is working on the implementation of a cryptoasset reporting framework. This is in line with the current common reporting standards, which is being regulated by the Tax Administration Act or being issued under the Tax Administration Act. So that framework will then…
Bernard Kruger (11:03.303)
allow source to share information we get from our cryptoasset or that we have in terms of our cryptoassets with international or other authorities, tax authorities in the same apply to them. What they're going to get from the from the or that they have, they will then share with us as well. So I think thinking that we can't see these
these transactions if you are investing internationally, I think that's the wrong view and we will definitely be able to at some stage be able to see this and touch on that.
Alec Hogg (11:51.49)
There was a time when there were almost guaranteed profits for those who were arbitraging in cryptocurrencies. And we even had a guy on one of our radio programs telling us how easy it was that people would give them money, 10,000, 100,000 Rand, whatever. They would then buy the crypto in South Africa, sell it overseas because it was cheaper for a period of time.
Are you looking at those kind of transactions as well? Has that come to your notice?
Bernard Kruger (12:25.619)
Yes, it did. So we've got to be able to take out that money from StaffCare to apply for a financial, for an investment allowance, FIA. So that information we do have and on that application you indicate whether it's for crypto or whatever the reason is you're going to take out the money. So we have that data and we are using that as well.
to determine or have look at your compliance.
Alec Hogg (13:02.754)
I was talking recently with somebody in the public sector who said you'd be amazed at how much we are using artificial intelligence, algorithms, other technical tools to track down the aberrations. Is it something similar at size?
Bernard Kruger (13:23.545)
Yes, it is. So we are using artificial intelligence tools. I think the Commissioner is frequently alluding to that, as well as machine learning, so that we can identify risk through using these tools and that we focus our efforts at the right place. Let's say we get the best yield in terms of…
in terms of our efforts. certainly that is something that we use and implement.
Alec Hogg (14:00.674)
So the world is getting smaller and for people like yourselves, for the tax man, that's a good thing. For the public, message presumably is just, just be honest. And if you've been dishonest, own up. Otherwise it might be worse for you.
Bernard Kruger (14:20.255)
Yeah, I do agree. think what is important for us at SOS is that we want people to be voluntary and compliant. One of our objectives is that we want to make it easy for taxpayers to comply, those who are easy to comply and also make it clear for them how to comply.
But for those that are compliant, think one of our objectives is then to make it art and costly for those that can come through enforcement initiatives. Also, think what is important is that for the crypto especially, we recently had a meeting
Bernard Kruger (15:20.534)
with other countries as part of the Jetsic group, working group. And what came out there is that other countries like the UK, the USA, Sweden, and New Zealand is focused a lot of attention on education, on making it clear or…
to their taxpayers what needs to be done. I think we want to do the same thing. think like I said earlier, voluntary compliance is the aim. We want people to comply with us doing enforcement.
Alec Hogg (16:10.68)
And so what are the risks? What are the penalties? If you have been trading in crypto assets and you think, well, okay, I'm going to ask for forgiveness when I get caught. What are the penalties if SARS has to catch you? In other words, if you have to find out about this through an audit process.
Bernard Kruger (16:33.557)
We can raise penalties up to 200 % if you didn't decline. So that would be the penalty of the capital amount. So it's quite hefty.
Alec Hogg (16:50.232)
It's very onerous indeed. And from here onwards, how much attention are you going to be giving to the crypto area? The tax man's got a wide remit.
Bernard Kruger (17:03.401)
Yeah, so we've got some measures in place already in place. So some of it is sending out compliance letters to taxpayers with high risk transactions. Then in the next few months, we would then increase this. We also have a unit that focuses on audit.
audits of this of crypto assets and we're busy implementing or expanding that resources. So we have tie some positions and we will soon appoint some additional auditors to assist with this task.
Bernard Kruger (17:57.661)
earlier mentioned the best practices that came from other authorities focusing on awareness and education, that is important. There's some sources working on some guidance documents which will then guide taxpayers exactly how to determine the taxability of
crypto assets and that will be published when approved.
Alec Hogg (18:33.058)
So if I can just to summarize, you do get the information from the crypto exchanges, not just in South Africa, but you might have access to them overseas as well.
Bernard Kruger (18:46.217)
That's correct. Yeah, we've already received some information from other authorities. So, you're right in your summary. We request information from the crypto assets exchanges. We're working with the FECA to get some information from them as well. And then, like I said, from other crypto…
tax authorities we get information from them.
Alec Hogg (19:19.64)
And are you, are you sitting on a naughty list? In other words, are you sitting on a list of people who you know have, have contravened regulations, but, you're giving them a warning. Is that the reason for issuing the statement as you did this week, just to almost give people a last chance?
Bernard Kruger (19:38.761)
Yeah, exactly. So we've got information. We're working on a model to where we can track the compliance of people that do crypto asset transactions. you're right. mean, just to encourage people, that's why we issued the statement earlier this week.
is that to say, listen, you have opportunity. If you're not compliant, please make use of the voluntary disclosure program. like I say, as we expanding our auditors, the number of auditors that's going to work on this, if you don't do it now, we will audit you. And like the penalty is going to be much higher.
then going through the voluntary disclosure program.
Alec Hogg (20:43.874)
Bernard Kruger is the business area lead at SARS and I'm Alec Hogg from BizNews.com.
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