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According to a report, the South African Revenue Service (SARS) has sent audit requests to taxpayers asking them to disclose their cryptocurrency transactions and purchases. Taxpayers who fail to properly disclose their bitcoin or other cryptocurrency earnings could be “fined or imprisoned for up to two years.”

SARS tracking of non-compliant taxpayers

In the report, which is based on statements from Tax Consulting South Africa, cryptocurrency traders are now required to declare the purpose for purchasing the digital assets. In addition, crypto traders must submit a “letter from the trading venue (s) confirming the investments and the relevant trading schedules for the period and bank statements”.

However, as Tax Consulting South Africa points out, this modified approach by SARS can pose problems for the taxpayer. According to the tax consultancy, “it is no longer relevant whether the taxpayer concerned had a justification for such non-disclosure or made a false statement.” Furthermore, this change to the audit request process means that “SARS is actively cracking down on non-compliant cryptocurrency traders in South Africa.”

“It is understandable that SARS is in the process of trapping guilty taxpayers who have not disclosed their cryptocurrency-related profits and / or losses,” said Tax Consulting South Africa.

The organization suspects that the audit requests are the “primary weapon in the SARS arsenal and that the walls are getting closer to non-compliant cryptocurrency traders.”

Need a new paradigm

Meanwhile, Ben Zhou, the CEO of Bybit, a leading crypto derivatives exchange, said in his response to SARS “giving cryptocurrencies due attention” that this approach “leaves something to be desired”. Zhou explains:

The decentralized nature of cryptocurrencies represents the future of money and requires a paradigm shift from current thinking. Proposals for a crypto regulatory framework should include regulatory technology (Regtech) and crypto-native solutions such as smart contracts, and not by default conform to the old standard showing its age in the era of digital payments and Central Bank Digital Currencies (CBDC).

In the meantime, Tax Consulting South Africa is urging the country’s crypto traders, who may not have disclosed their purchases, to seek advice. The organization adds that “even if you have not purchased a cryptocurrency in the past, you should exercise caution when responding to an audit request.”

What do you think of SARS’s new approach to cryptocurrency taxation? Tell us what you think in the comments section.

Image Credits: Shutterstock, Pixabay, Wiki Commons

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