MARIUS REITZ: Tax reporting is the next step in crypto progress

Over the past few years there have been some high-profile cases in which cryptocurrency exchanges have faced intense media scrutiny because of instances, and even just allegations, of serious misconduct. Luno, one of the world’s oldest crypto exchanges, has avoided any such controversy and losses. 

On the basis of this strong track record Luno is now requesting local regulators to work with it and other role players, such as the SA Reserve Bank, to help ensure digital assets are regulated in line with global best practice. The global perspective on digital assets is shifting towards complete legitimacy and integration with other asset classes.   

This year US President Donald Trump passed an executive order to provide regulatory clarity on digital assets and appointed a “crypto czar” to manage the sector. Furthermore, the US office of the comptroller of the currency (OCC) now allows US banks and savings associations to hold digital assets on behalf of customers and participate in blockchain or distributed ledger networks to facilitate payments — meaning banks are using the underlying technology of digital currencies.   

For example, bitcoin serves as a reserve asset in several countries and will be used a strategic reserve in the US, alongside gold and petroleum, not for resale but to store wealth.  

With a fixed supply of 21-million coins, bitcoin, which has never been hacked, continues to gain value thanks to its limited supply and increasing adoption. BlackRock, the world’s largest asset manager, now offers exchange traded funds (ETFs) that track bitcoin and Ethereum and these ETFs have surpassed gold in value, despite gold being a long-established store of wealth.  

SA risks being left behind if regulators and financial authorities do not embrace the evolving digital currency landscape. According to an SA Revenue Service (Sars) 2024 statement, about 5.8-million South Africans hold some form of crypto asset. Sars has also correctly urged these individuals to declare gains from selling digital assets.   

Often in media reporting on tax matters cryptocurrency exchanges have unfairly been linked to tax evasion. This misleading association stems from the decentralised nature of cryptocurrencies and the perceived anonymity they offer, leading some to believe they facilitate the concealment of taxable income. However, this connection is not inherent to the exchanges themselves. As Sars rightly warns the investors themselves — declare or face the consequences.  

In the minds of many people, even large and established cryptocurrency exchanges have somehow been associated with the idea of tax noncompliance. This is at best a misrepresentation and at worst dangerous and damaging. To single out digital asset exchanges as the tax culprits is to unfairly tarnish their reputation.  

Luno, for instance, is committed to ensuring tax compliance. The company encourages users to declare all profits and pay required taxes. It constantly engages with Sars and has even developed the necessary back end systems to link with Sars. It is possible to connect crypto exchange systems to Sars so that tax users’ profits from digital assets can be automatically declared and taxed seamlessly, integrating them into the mainstream financial system. This would be similar to how banks report taxpayers’ interest earnings from savings accounts and how investment platforms report stock sales profits.  

Crypto cannot be ignored — more than 20,000 coins are in circulation. It is far better for tax compliance overall if consumers can use integrated platforms that collaborate with authorities to ensure tax compliance. In Nigeria, a government clampdown on cryptocurrencies pushed traders towards anonymous peer-to-peer networks, making it harder to track suspicious transactions. SA regulators can learn from this and work with industry players rather than ignore cryptocurrency’s reality.  

Cryptocurrencies are just another financial asset, a significant one with immense potential: bitcoin, for instance, is by far the best performing asset of the past decade. Integrated tax reporting — such as is already done through banks and investing platforms — is the next needed step in SA’s acceptance of a new financial reality. A system of direct reporting, forged through mutual understanding and shared objectives, would not only serve to quell anxieties surrounding tax evasion, but also pave the way for a more mature and responsible digital asset system, benefiting the entire SA economy.   

Luno has demonstrated its willingness to co-operate with regulators in other jurisdictions. In Malaysia, for example, it proactively helped the country work with officials from the Financial Action Task Force (FATF) to work on ensuring proper tracking of digital assets. Similarly, in SA Luno is ready to comply with the Travel Rule, a FATF regulation taking effect locally in April. This rule mandates that digital exchange providers verify customer identities and identify the sender and receivers of transactions above a certain threshold. Luno knows who its customers are and can indeed provide details of those involved in digital asset transfers.  

Digital assets are now a recognised and mainstream financial asset and increasingly a unique store of value in the global financial system. What all credible crypto exchanges need is for regulators to make the necessary regulatory improvements that will benefit users, revenue and the entire country.   

• Reitz is GM: Luno Africa & Europe.