by | Mar 1, 2021

The financial services conduct authority prohibits us from advising clients on crypto currency. This topic is very widely discussed, and this currency is making business, governments, and banking systems to consider different approaches to business.

At this point in time, the crypto currency industry, in many ways, is like the wild west and is an industry that needs regulation. Right now, there is very little to no regulation and this creates unintended consequences good, bad and ugly. Technology built into the blockchain and technology around this is something that may be used to serve the future of this type of business.

One of the things that governments are doing in the background is building regulation and also taxation for these assets. Locally SARS has started nibbling on this. Below from Tenzeel Akhtar commenting from the coin desk.

The South African Revenue Service (SARS) is reportedly sending taxpayers audit requests, asking those who have held cryptocurrencies to disclose their trading activity.

  • SARS has sent the requests to a number of taxpayers who, in turn, contacted professional tax services firm Tax Consulting South Africa, reported local IT news site MyBroadband on Tuesday.
  • Responding taxpayers need to provide the reasons for buying cryptocurrency, as well as details of any exchanges from trading platforms and bank statements.
  • According to the tax consultancy, SARS’ action means the government is cracking down on non-compliant cryptocurrency traders in the nation.
  • “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,” the firm said in the report.
  • In recent news, South Africa’s financial market regulator is reportedly seeking greater oversight of the cryptocurrency trading industry following the collapse of a bitcoin (BTC, -13.09%) company alleged to have been the nation’s biggest Ponzi scheme.

Closing thoughts

With more regulation may come safety and provide guard rails for those who wish to explore this asset class and more importantly, education around it.

In order to do this, governments will regulate and tax these coins.

Interestingly there are more “commercial” ideas floating around banks and organisations which look to adopt a more cashless system which crypto currency has accelerated.

At the end of the day, if you think about it, we are heading in that direction. For example, if every person (at once) descended upon their bank of choice, for example FNB, and demanded their current account balance in cash, the bank would not be able to provide these physical notes. So, part of our wealth is already in the online world. Crypto currency and the technology around this are a private leap in this direction, but in the realm that is not as regulated.

We continue to ask our clients to be wary and to use wisdom when interacting with information or misinformation around these coins. We believe that things need to be regulated to be able to serve the average person.

The spirit of the law is that people need to be taxed when gaining value through investing. In traditional investing, like an endowment as example, the tax provision is considered automatically. Currently people may be caught unaware should SARS impose two things:

  • Asking all taxpayers to declare crypto assets and trades. This may go as far as talking to crypto exchanges.
  • Asking taxpayers to then pay ta on those assets from a certain point.

We have no idea when this will come into play. We are simply staying abreast of the broader developments around these financial instruments. If any of you would like an article written by Morningstar on crypto assets within the context of long-term investment, please let us know.