A bumpy road for crypto

Has South Africa’s Crypto Crackdown Already Spooked The Market?

By  |  February 4, 2021

Ever since the massive MTI sham happened, South Africa’s cryptocurrency space, in general, has faced scrutiny like never before. And it appears the continued stiff and intrusive regulations have left more than a few concerned.

First, there was talk of regulations that would compel crypto startups in the country to obtain a Financial Services Provider (FSP) license or cease operations. Backed by the government, the Financial Sector Conduct Authority (FSCA) is looking to go tough on crypto by pursuing the adoption of stricter controls.

Add that to the recent campaign by the country’s tax agency to drag crypto traders into the tax net and there’s more reason to suspect that crypto trading is going through a bit of a bumpy period in South Africa.

That bumpy period is perhaps best encapsulated by data which suggests that the market may already be spooked. South Africa’s daily bitcoin transaction volume slipped by 10 percent in January; to about USD 258 K from around USD 235 K in the previous month.

Along with Nigeria, South Africa is one of the top two markets for cryptocurrencies in Africa and among the top 10 globally, by some estimates — in terms of crypto trading volume and value.

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It could also be said that the country also has a reputation as a “pro-crypto” State, seeing as it is among the handful of African nations with recognisable legislation around crypto.

Much of the recent suppressive scrutiny which the country’s crypto space is currently facing can be blamed on the widely-reported sham involving a bitcoin trading platform known as Mirror Trading International Ltd. (MTI).

With some USD 740 Mn and a runaway CEO in the wind, some are already calling it the biggest fraudulent scheme ever recorded in South Africa. MTI reportedly had over 200,000 members across the globe.

In the wake of the investigation and liquidation that trailed the elaborate sham, South African regulators are making moves that appear to be a coordinated attempt to put crypto trading on a tighter leash.

It started with the proposed licensing requirement that crypto trading platforms must fulfill and has now spilled into a demand from the South African Revenue Service (SARS) that taxpayers must compulsorily disclose all crypto-related transactions and income.

This would include use cases to the SARS, and defaulters would be subject to a fine or face imprisonment for up to two years.

As reported by MyBroadband, the SARS has sent audit requests to taxpayers requesting them to disclose cryptocurrency trades and purchases. This is according to Tax Consulting South Africa, which said it was recently approached by taxpayers who received this type of audit request.

The request included standard questions related to the taxpayer’s return, but also requested information on the purpose for which the individual purchased cryptocurrency, as well as a letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period and bank statements.

“This would have been reasonably expected by the taxpayers, if they had made any disclosure of cryptocurrency-linked trading amounts in their returns, along with the rental amounts and certain investments that were indeed disclosed to SARS,” Tax Consulting South Africa said.

“However, in this case, we had explicitly confirmed that the taxpayers had not, to their knowledge, ever effected a cryptocurrency-related transaction.”

Given that it is a criminal offense in South Africa for a taxpayer to wilfully fail to submit data requested by SARS or to submit false information, Tax Consulting SA notes that there are dire consequences for those found wanting.

According to the firm, any taxpayer who fails to correctly disclose their income from bitcoin or other cryptocurrencies may be liable to conviction for an offense and be slapped with a fine or imprisonment for up to two years.

It has also been speculated that the change to the SARS’s audit request means the tax body is actively cracking down on non-compliant cryptocurrency traders in South Africa.

“It is feasible to understand that SARS is in the process of ensnaring culpable taxpayers who have not disclosed their cryptocurrency-related trading profits and/or losses,” Tax Consulting South Africa said.

It follows that South Africans who have not disclosed cryptocurrency purchases or trades to SARS may need to seek guidance to resolve this non-disclosure sooner rather than later.

That’s an additional constraint on South Africa’s burgeoning crypto scene and it is not far-fetched to see all these repressive measures taking a further toll on crypto trading in the country, as was the case in January.

Featured Image Courtesy: Forkast News

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