As published on ventureburn.com, Wednesday 2 September, 2020.
Mazars, an accounting and tax consulting group has urged cryptocurrency traders in South Africa to prepare for possible stricter taxes.
According to reported indicated by Bitcoin.com 13% of internet users in South Africa are owning or utilising cryptocurrencies. In addition, the use of cryptocurrency has reportedly grown in the country over the past five years.
Wiehann Olivier, Partner at the Audit Division of Mazars in South Africa, explains the possible various techniques SARS could apply for the direct taxing of cryptocurrencies.
“To start, the fact that cryptocurrencies were created to allow for anonymous, frictionless, and trusted peer-to-peer transactions to be conducted over the internet (including cross-border transactions) means that it can be used as a means of tax avoidance in a number of different ways.”
According to Oliver, investors can store their cryptocurrencies in paper or hardware wallets instead of using a custodian service such as an exchange. Moving to this form of crypto storage can safeguard users’ assets and make it “impossible to confiscate and difficult to track their movements”.
“There is also the option to rely on a series of smoke and mirrors. Different types of cryptocurrencies can be exchanged for one another and passed through a series of wallets and public key addresses to attempt to confuse the trading activities and to evade taxes.”
Currently, SARS is relying on the honesty of South African taxpayers to include their realised gains on cryptocurrencies as part of their taxable income.
“SARS has not yet released any specific legislation around the taxation of cryptocurrencies, besides that taxpayers need to include any realised gains from the trading of cryptocurrencies in their taxable income. However, we believe that SARS will publish new regulations in the coming years to have a more specific focus on these digital assets. One of these interventions may include introducing regulations that require all South African cryptocurrency exchanges to share information with SARS, making it more difficult to apply the above-mentioned method of avoidance. With that said, it will require SARS to gear itself to ensure that it can collect on what it is owed,” said Oliver.
In addition, Oliver adds that there may be a possibility that offshore cryptocurrency exchanges and banks might have the same agreement with SARS as foreign institutional investors have, whereby they share individuals and companies’ trading and asset holding data with revenue services from various countries.
Implementing this would make it harder for South African cryptocurrency users to avoid paying tax by moving assets out of the country.
Notably, Olivier is of the opinion that businesses should already begin to prepare for tighter regulation of their digital assets.
“Trading companies should consider acquiring the services of firms that can supply confirmation and reporting around its clients’ digital currency audits, well before new regulations are introduced.”
With the introduction of stricter tax legislation a virtual certainty within the next few years, Olivier adds that preparing for these interventions well ahead of time may be beneficial for cryptocurrency exchanges, traders, and investors.
“The regulation of digital assets in South Africa could even bring exciting business opportunities for many entrepreneurs and business,” Olivier concludes.