Legalbrief Forensic Issue 765
Global crypto trading values have soared over the past few years and are currently averaging in excess of $200bn a day. Understandably, SA authorities are keen to establish the identities of local investors. At the same time, notes Legalbrief, SARS is engaging with cryptocurrency exchanges to identify undeclared gains. And the Intergovernmental Fintech Working Group (IFWG) is seeking to regulate crypto markets in SA and bring crypto-assets within the regulatory remit ‘through the regulation of crypto-asset service providers’.
In a new paper, the IFWG has noted that with the crypto space maturing rapidly, regulators around the world are accelerating efforts to either embrace or regulate crypto-currencies. ‘Since the release of the Bitcoin White Paper more than 12 years ago, the crypto asset ecosystem has grown to include more than 10 000 unique crypto assets as at the time of publishing this paper,’ said IFWG chairperson Olaotse Matshane. He points out that policymakers, regulators and central banks have been clear that crypto assets are not ‘money’ in the legal tender sense of the word, although they perform some of the functions of money. The move to regulate crypto-currencies in SA comes as local exchanges this year told ITWeb they were expecting more regulation as the price of Bitcoin continued to surge. However, most of the exchanges were in favour of regulation, saying it ultimately brings clarity and protection to businesses and consumers.
Judging by the anecdotes, there are a lot of wealthy South Africans thanks to the cryptocurrency boom. Many of us have heard about the friend of a friend who got into Bitcoin and rode the wave as it appreciated by more than 30 times and peaked at more than $60 000 (it is now about half of that). SARS last month began conducting a tax risk assessment exercise in respect of SA residents engaged in the mining, speculation and/or investment in crypto assets. It reminded taxpayers to declare all crypto-currency-related taxable income during the year such income was received or accrued. Also last month, the Reserve Bank embarked on a study to investigate the feasibility, desirability and appropriateness of a central bank digital currency. This, the central bank said in a statement, would include electronic legal tender for general-purpose retail use, complementary to cash. And Business Insider reports that trades may be traced now or in future, and tax avoidance is tax avoidance, regardless of the instrument. ‘It is well worth remembering that tax is not only levied upon withdrawal of fiat from an exchange,’ said Thomas Lobban, legal manager for cross-border taxation at Tax Consulting SA. ‘In other words, sales, exchanges and other activity taking place on a cryptocurrency exchange is often taxable and cannot simply be ignored because it has not been withdrawn (and therefore SARS does not know about it).’
In a recent tax presentation to financial advisers hosted by Glacier by Sanlam, Diane Seccombe, national head of taxation at the Mazars Academy, said SARS treated cryptocurrency as an asset, not as a currency. In fact, SARS and the National Treasury now use the term ‘cryptoassets’ rather than cryptocurrencies. However, they are not assets like shares or bonds â€’ a cryptoasset is defined as a financial instrument, in a class of its own. A report on the IoL site notes that Seccombe warned that because SARS was working more closely with the Reserve Bank, along with other measures it has instituted, it was able to more easily detect the buying, selling and ownership of cryptoassets, including transactions on offshore exchanges. She reminded the advisers that their clients’ obligations to SARS extended to assets held offshore.
In other developments, the Congress of El Salvador has approved a law that will classify Bitcoin as legal tender, making it the world’s first nation to adopt a cryptocurrency. According to an EWN report, President Nayib
Bukele said a majority of 62 out of 84 lawmakers approved the Bill, which he proposed last week. The law passed with the support of Bukele’s allies despite minority opposition parties, who had criticised the speed of the vote, refusing to back it. Before the vote, Bukele said adopting the cryptocurrency would bring ‘financial inclusion, investment, tourism, innovation and economic development’ to the country. The Salvadoran leader has hailed Bitcoin as ‘the fastest-growing way to transfer’ billions of dollars in remittances and to prevent millions from being lost to intermediaries. Remittances from Salvadorans working overseas represent a major chunk of the economy, equivalent to roughly 22% of GDP.