South Africa approved 138 CASPs, yet unclear tax rules leave crypto traders struggling with compliance issues.
Know-your-customer processes expose crypto trades to SARS data collection, affecting past and present transactions.
The complex tax status for crypto assets in South Africa complicates compliance for short-term traders and long-term holders.
South Africa is experiencing changes in its cryptocurrency. Thomas Lobban, a senior tax and legal associate at Latita Africa, highlighted the challenges that crypto traders face regarding tax implications.
Despite the Financial Sector Conduct Authority (FSCA) approving the license applications of 63 additional crypto asset service providers (CASPs), bringing the total to 138 out of 383 applications, uncertainty remains. Crypto traders struggle to understand the correct tax treatment for their investments.
https://twitter.com/mybroadband/status/1820083427850191267 Unclear Tax Treatment for Crypto Traders
Furthermore, according to Lobban, this development is essential to South Africa's attempts to get off the Financial Action Task Force's "grey-listed" list. However, because the regulations governing crypto taxes are still hazy, taxpayers continue to struggle with compliance concerns. Authorities are seen as prioritizing enforcement over clarifying these tax mechanics, which adds to the confusion.
Latita Africa supports the regulation of the crypto economy, which promises several benefits. It shields customers from deception and corrupt tactics. It also prohibits tax evasion, recovers unreported income and capital gains, and limits money laundering operations and terrorist financing.
Know-Your-Customer Processes and Data Collection
CASPs are now required to implement know-your-customer processes. Consequently, anonymous usernames are being replaced with detailed customer records. This shift means that current and future crypto trades, along with historical untaxed transactions, are exposed to the South African Revenue Service (SARS) data collection efforts. This availability of information is not new, but it is now more accessible.
Lobban highlighted that SARS may use its AI technologies to scrutinize crypto trader records. Whether they focus on high-value targets or apply this en masse remains to be seen. An issue with South African tax law is the lack of recognition for the term "cryptocurrency." Crypto is treated as a digital asset, similar to property or stock market shares, and its tax treatment depends on its acquisition and disposal.
Determining a crypto asset's tax status is complex. For instance, short-term crypto trading is not necessarily considered income, while long-term holding does not always count as capital. This complexity adds to the challenges faced by taxpayers.
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