Crypto players call for reforms to unlock over R500m in extra tax

South African crypto-currency players are calling for regulatory changes that will see digital currencies being declared onshore assets in the country.

They note South Africa’s regulatory grey zone around digital currencies may be holding back significant investment potential.

Currently, crypto-currencies are not formally designated as either offshore or onshore assets. However, the crypto players note that if local authorities were to follow the global trend and classify them as onshore assets, it could unlock a wave of opportunity for local asset managers.

They believe such a move would pave the way for crypto-currency exposure through exchange-traded fund (ETF) products – broadening investor access, while potentially boosting tax revenue.

The industry stakeholders argue that aligning digital asset classification with onshore status could strengthen South Africa’s position in the fast-evolving digital finance space and contribute meaningfully to public coffers.

Marius Reitz, Luno general manager for Africa and Europe, says updating South Africa’s crypto-currency regulations to bring them in line with global best practice would generate at least R540 million in additional tax revenue for government.

Reitz explains that to calculate this tax figure, Luno assumed as little as 1% of institutional funds would be invested in a digital asset product such as a Bitcoin ETF, calculated conservative annualised returns and the tax rate used.

“In the context of South Africa’s anaemic economic growth, high debt burden and pressing social needs, the necessity of harnessing digital assets for growth has never been clearer,” he says.

“Digital assets, especially Bitcoin, have far outperformed other investments, such as stocks and bonds, over the past decade on an absolute basis, but local institutional investors are not benefitting from the high returns, ultimately resulting in less money for the fiscus.”

Bitcoin recently reached R2 010 800, its highest point to date, showing over 1 000% growth in five years.

Marius Reitz, Luno GM for Africa and Europe.

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Frank Leonette, founder of crypto exchange Afridax, says clear classification of crypto assets, whether offshore or onshore, will make it easier for ETFs and other structured products to be approved by regulators like the Financial Sector Conduct Authority (FSCA).

“A crypto ETF reduces friction for those who don’t want to deal with private keys, exchanges, or complicated self-custody of crypto,” Leonette says.

“This would massively broaden market participation. Investors who may have operated off-radar would now be participating through regulated vehicles, increasing SARS’s [South African Revenue Service’s] visibility, and will ultimately increase tax revenues.”

On the crypto regulatory front, he states that FSCA created a regulatory framework for crypto asset service providers to be licensed.

“It’s time for regulators to amend or relax exchange control regulations. Doing so would enable more crypto to enter the country to meet growing demand and foster innovation in the digital asset sector.”

He points out that crypto assets have already been defined as financial products by the FSCA, and SARS has confirmed that any investment gains derived from them are subject to Capital Gains Tax.

Frank Leonette, founder of Afridax.

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“With Bitcoin experiencing significant growth in both adoption and returns, this sector is increasingly contributing to the national fiscus through taxes collected on trading profits and investment activities. Many new business innovations are starting to mature and will contribute to the fiscus.”

According to Leonette, the South African crypto industry has been engaging with regulators through associations, workshops and direct consultations to address outdated exchange control rules.

“These efforts aim to ensure crypto activity is transparent, regulated and able to support the national fiscus through increased tax revenue and economic participation.”

For Reitz, uncertainty about the status of digital assets is holding back growth in South Africa. “If that growth were to be unlocked by an ‘onshore’ designation – as is increasingly being done elsewhere in the world – South African asset managers could harness the impressive power of the crypto-currency digital asset market through ETF products. This would inevitably lead to increased investment, higher profits and increased capital gains tax collection for the fiscus.”

For example, Reitz adds, BlackRock, the world’s largest digital asset manager, launched a Bitcoin ETF in 2024 and it has become the fastest BlackRock ETF to have amassed over $70 billion (R1.2 trillion) in investment, showing the value and interest in such products.

He explains that ETFs are a kind of investment vehicle, traded on the stock market, that follow the price of one or more underlying assets, such as digital assets, currencies or metals, including gold, silver and platinum.

“South Africa must look for solutions and stay ahead of the curve. A future scenario in which South African regulators have unlocked crypto-currency growth can be laid out clearly.”

Reitz is of the view that there also needs to be regulatory clarity on the exchange control designations for individual and institutional investors.

He points out that late last year, the first UK pension fund strategically allocated 3% of its portfolio to Bitcoin.

“The move indicates how global institutional investors are including digital assets in traditional portfolios, marking a fundamental change in how crypto-currencies are viewed by finance experts.

“But it is not just investors who can benefit. Digital assets hold immense promise as a source of increased tax income in a country that is in desperate need of it. Right now, simply because of regulatory obstacles, the tax generated from digital asset returns is relatively meagre. The digital asset industry can contribute to the inclusive growth of South Africa.”