Cryptocurrency has been gaining momentum in South Africa and the South African government has made it clear, in the 2022 Budget Speech, that they are taking it very seriously.
Thomas Lobban
Legal Manager:
Crypto Asset Taxation
In the Budget Review 2022, the government has laid their cards on the table by proposing that regulatory bodies need to be established to safeguard the crypto owner. Government has taken the interventions proposed by the Intergovernmental Fintech Working Group (“IFWG”) which stipulate the following:
What do these interventions mean for South African crypto owners?
The first and second interventions explain the need for a regulatory body to regulate cryptocurrency in South Africa. These interventions are aimed at companies and individuals who “trade” on the market with clients’ crypto assets and then later disappear with the money. Companies and individuals will be required to register with the Financial Sector Conduct Authority (FSCA) and adhere to their requirements.
In intervention 3 it is stated that government wants to intensify their monitoring of crypto users that use South African exchanges to send crypto assets to an international exchange like Binance etc. This practice is currently used for 2 reasons –
Crypto-owners currently have a R1-million discretionary allowance per financial year which allows them to send money/crypto overseas without needing approval from the South African Reserve Bank (“SARB”). This ruling is aimed at individuals sending more than R1-million and not obtaining the necessary approval from the SARB.
Why regulation is necessary.
Crypto owners should see these proposed interventions as a proactive approach from government to protect both the consumer and the South African fiscus. South Africa has seen an increase in cryptocurrency theft and the need for regulation has been high on the radar of the government. This follows high-profile cases where company founders allegedly stole billions of rands in crypto assets from South African crypto owners.
Protect your crypto assets.
With cryptocurrency being volatile and regulation not being formally imposed yet, it is important that the crypto owner is equipped with the correct information to protect their assets from theft.
According to Ruan Stander, Cryptocurrency Accountant at Tax Consulting South Africa, crypto assets need to be treated with the same security measures as a personal bank account. Just like a bank account has a security PIN that needs to always be kept private, a cryptocurrency account has an Application Programme Interface key (API key). This API key should be kept private as well.
“Clients should avoid giving out their API Key’s and if they are going to give it to someone, then it should be set to “read-only”. When you are generating your API key, you can filter the rights for that API key generated. It is very seldom that someone is going to ask for your API Key and if they do then the client needs to be very wary of it and never be afraid to question it,” explains Stander.
The crypto owner needs to remember that if it sounds too good to be true, then it usually is. Therefore, it is important that crypto owners do their research on companies that want to manage their accounts, and make sure that the company is registered with the FSCA. Another red flag that crypto owners need to be wary of, is when a company offers exponential growth on returns.
“If companies are offering you 5% growth per day, that’s a bad sign. Even if companies are offering 1% to 2% growth per day it should be heavily scrutinized, because such growth in cryptocurrency is difficult to achieve,” explains Stander.
If you are unsure about how to proceed with your crypto assets, then it is in your best interest to consult specialist tax practitioners and tax attorneys who are experts in cryptocurrency, to obtain correct and expert advice on how to manage your crypto assets.
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