Wiehann Olivier from Forvis Mazars SA comments on Sars’s release of the draft Crypto-Asset Reporting Framework regulations.
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SIMON BROWN: I’m chatting now with Wiehann Olivier, Partner and Head of Fintech and Digital Assets Lead at Forvis Mazars South Africa. Wiehann, appreciate the early morning time. Earlier this week – I think it was on Monday – Sars released the Draft Crypto Asset Reporting Framework. The first question: what is the Crypto Asset Reporting Framework that they’ve released in draft form? What are they looking to do and achieve?
WIEHANN OLIVIER: Hi, Simon, morning. Nice chatting to you again. Effectively what they’re trying to achieve with this is for Sars to basically cast their tax net wider. Currently there’s a lot of information that these virtual asset service providers or cryptocurrency exchanges are effectively sitting on – and there’s not really real-time engagement with Sars in terms of providing that relevant data to Sars for them to utilise to cast their tax net a little wider.
What this Crypto Asset Reporting Framework will do is align with international standards and effectively result in these crypto asset service providers providing Sars with information on a more granular level, but also in relation to specific information to taxpayers.
So it won’t be linking up ID numbers or individuals names and now actually be linking up taxpayers’ information and tax numbers. So effectively you would have Sars as being able to do more diligent audits at the end of the day.
SIMON BROWN: Oh, do we already see this? I’m thinking my stockbroker perhaps, my bank account. Sars already has a lot of access at taxpayer number level in a bunch of financial industries.
WIEHANN OLIVIER: Yes, you’re 100% right. I think that’s what we’re moving towards from a cryptocurrency perspective. A lot of individuals in South Africa are still not declaring their taxes. That is evident, based on the fact that I think there are about 500 000 taxpayers declaring their taxes based on chain analysis analytics that show that about six million individuals in South Africa actually own cryptocurrency. There is a lot of under- declaration taking place and this is not unique to South Africa. It’s happening all across the world. We see it particularly in France as well.
At the end of the day, what Sars is trying to do is just make sure that it doesn’t happen going forward.
Effectively what will happen, as you mentioned, will be in similar situations to the banks, where your IT3(b) or IT3(c), depending on whether you got capital gains from trading or staking rewards, [are] actually pulling through on your tax return. But of course we are still a couple of years away from that in my view.
SIMON BROWN: This is open for public comment, I think, until early October. But my sense is this shouldn’t be controversial. No one’s going to stand up and say, ‘I don’t want to pay tax’. We all want to reduce tax, but we need to pay it.
WIEHANN OLIVIER: Yes. I think at the end of the day blockchain-based digital assets were designed to operate outside of the constraints of the traditional financial services sector and there are a lot of individuals who believe it should also fall outside of the tax laws and the various regulations. Unfortunately there’s this mindset of a lot of individuals. Of course, it has become significantly better over the last call it eight to 10 years In terms of people coming to the realisation it’s just another asset class and it needs to be treated in terms of income tax and you need to pay your taxes on those relevant gains.
SIMON BROWN: That’s a great point. Crypto really is no longer a fringe asset class. Six million South Africans are holding it. It has come into its own. We’ve seen the regulation increasing over time. This is only a good thing for the crypto ecosystem.
WIEHANN OLIVIER: 100% correct. You see the likes of large financial institutions actually adopting the asset class. I think Bitcoin is sitting under, if I’m not mistaken, the top eight assets worldwide by market cap – just over US$2 trillion, so it’s no longer an asset class that’s used only by a couple of technology enthusiasts. It has become a mainstream asset class and I think people need to realise that from a tech standpoint.
SIMON BROWN: We’re not sure of timelines. As we said, this is draft. It’s open for public comment. Is our industry locally ready for this? Assuming it passes and whatever that timeline is – and there might be a period of phasing it in – is the industry ready?
WIEHANN OLIVIER: Of course there’s a lot of work that needs to be done by the virtual asset service providers – or the crypto asset service providers as we refer to them from a regulatory standpoint. The bulk of the work needs to be done on their side. They’ve done fairly well in terms of the anti-money-laundering and know-your-client procedures that they need to perform in terms of the Financial Action Task Force. So there have been a lot of steps forward by these crypto asset service providers in South Africa in terms of having the reporting ability. It’s definitely something that they would be able to handle.
And in terms of timelines I anticipate that Sars will try and get this over the line quicker rather than waiting on it, because they’re losing out on a possible revenue stream there.
The same applies if you think about elements like the South African Reserve Bank and exchange control regulations with the recent court case of the South African Reserve Bank versus Standard Bank. Even from that perspective if there are dire changes to regulations that need to be made we can’t have a situation where lawmakers are currently sitting on their hands and not addressing the elephant in the room in relation to asset class, because the asset class is really not going anywhere. And I think that’s been proven in recent years.
SIMON BROWN: Hundred percent. It absolutely isn’t. You mentioned the Financial Action Task Force, the folks who put us on the grey list. They’ve got a plenary meeting – I think it’s towards the end of next month – where maybe we’ll get off the grey list. Does this link to this, or is it just coincidence that it’s coming out now because there was a list of some 20-odd tickboxes we had to comply with, and some of those were legislative.
WIEHANN OLIVIER: What is rolling out is definitely not specifically related to the grey listing as well. It’s basically just an add on. Most crypto asset service providers are adhering to the necessary requirements of the travel rule and all of those things. This is just for Sars, saying, well, okay, if the crypto asset service providers are able to report on a real time basis, on a daily basis to the various authorities, then surely they could be doing that from a tax plan point as well and we can we can get our cut of the pie.
SIMON BROWN: The key point is – and you mentioned basically this is global standards – of course this is a new industry, so they have kind of been we can’t look to other global markets. In some ways we’re trendsetters. The short version is we are there with those global standards. It might be a new asset class, but we’re not being left behind as a country and as a financial services industry.
WIEHANN OLIVIER: I think it’s important to note that this is not an asset class tied to a specific jurisdiction. This is an international asset now. Global assets require global regulations as well. That means that all of the countries need to come to the party in terms of how they regulate the asset class as well, because otherwise you get these instances of regulatory arbitrage which you want to try and avoid because it creates loopholes in the systems effectively.
But I think in terms of regulating the industry, there was a position also released now by the JSE providing guidance on how a listed cryptocurrency Spot ETF would look in terms of how the custody would look and the various requirements being done. So it’s always a step forward.
But I do believe South Africans can move a little faster if you look at the various other regulations being issued on a global basis – things like the ‘Genius’ Act, the Stablecoin Ordinance in Hong Kong, the MiCA.
These lawmakers abroad have put in significant efforts to try and regulate the industry. And, if you look from a US perspective, they’re reaping the benefit of that as well, forcing stablecoin issuers to buy those Treasury bonds from the United States, effectively strengthening the US dollar.
To that extent that is very innovative and I hope and I wish that we see that going forward from a South African standpoint as well – that they regulate the industry in such a way as to protect their stakeholders but rather not stifle the innovation, but also innovate from their side as well.
SIMON BROWN: Doing good, but perhaps a little bit more, as you say. The Genius Act is one of them. And of course part of that is if it gets folks to buy the long- and short-dated bonds.
We’ll leave it there. Wiehann Olivier, partner and fintech and digital asset lead at Forvis Mazars South Africa, I appreciate the early morning.
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