South African authorities sign multilateral agreement requiring exchanges to provide taxpayer information for taxation purposes.

The South African Revenue Service (SARS) recently issued a statement indicating their concern over the significant use of digital assets by South Africans, with over 5.8 million South Africans holding digital assets, and claiming that South Africa has the highest Bitcoin ownership in the world. SARS mentioned that these digital assets and related transactions have not been reported on tax returns, therefore they plan to collaborate with the Financial Sector Conduct Authority (FSCA) to request information from cryptocurrency exchanges.

Digital Asset Tax Data to Become Central to Multilateral Agreements, SARS Vows to Punish Tax Evaders

The statement indicates that SARS is exchanging information with tax authorities globally through multilateral agreements, with the provision of offshore crypto accounts set to be the theme of a multilateral agreement signed by the Minister of Finance in November 2024. This agreement will facilitate the exchange of necessary tax information of South African taxpayers through this agreement with jurisdictions that have signed the agreement. In other words, if South African taxpayers use exchanges registered in countries that have signed the multilateral agreement, their relevant information will be obtained by the tax authority in the name of official duties to facilitate tax reporting.

SARS stated that they will handle related matters from the perspective of trusting taxpayers and exchanges to honestly report. SARS provides clarity on all legal obligations for taxpayers and exchanges, with the goal of making those who intentionally violate regulations pay a high price.

Authorities Explicitly State Intent to Combine AI for Fair Enforcement, Welcome South Africa's Definition of Cryptocurrency as an Asset

SARS expressed that they will use artificial intelligence, machine learning, and algorithms to assist audit teams in enforcement measures. They recently sent letters to taxpayers who own digital assets to understand taxpayers' investments in digital assets and transactions to assess their compliance in this area.

SARS also encourages taxpayers concerned about the compliance of their digital assets to participate in SARS's Voluntary Disclosure Program (VDP), but the conditions for participating in this program are stringent. One condition is that taxpayers must first pass SARS's assessment. Once SARS determines that the taxpayer will undergo a second audit, they cannot apply for the VDP.

Commissioner Edward Kieswetter of SARS stated that those who evade tax responsibilities make the burden heavier for compliant taxpayers. This is not only unfair to honest taxpayers but also hinders the government from providing more social assistance and other social welfare, disproportionately affecting vulnerable groups in society. Technology enhances SARS's enforcement capabilities, and he reiterates that taxpayers should be honest, as SARS will impartially review everyone.

Although the entire statement seems to imply SARS's tough enforcement stance towards taxpayers and AI-assisted enforcement, the author believes that the attitude towards incorporating digital assets into income and asset categories will further advance compliance in South Africa.