South Africa risks missing out on millions in tax due to a lack of cryptocurrency regulation
Image: AFP
Half-a-billion rand. That's the minimum in extra tax the South African Revenue Service (Sars) could collect if local regulators made a single regulatory change and designated cryptocurrencies as an onshore asset.
If digital assets, such as Bitcoin, were formally classified as an onshore asset, it would allow local asset managers more ease in creating exchange-traded funds (ETFs) tracking its price, opening access to investments in the digital currency to both retail and institutional investors.
Against the backdrop of South Africa's sluggish economic growth, mounting debt and urgent social challenges, the increasing relevance of digital assets becomes both an investment opportunity and a potential source of tax revenue. South African founded Luno, which operates in more than 40 countries, has estimated through a conservative calculation that R540 million in tax revenue could be generated over five years.
To arrive at the R540m figure, Luno assumed a slow adoption rate, and as little as 1% of institutional funds invested in a digital asset product such as a Bitcoin exchange traded fund (ETF). They applied conservative annualised returns and the relevant tax rates to reach the estimate.
Given that Bitcoin has significantly outperformed Luno's assumptions, the actual tax revenue could be much higher. As the government is frequently seeking more sources of tax revenue, quick regulatory action on this front appears an easy win.
ETFs are traded on stock exchanges and mirror the price of underlying assets such as currencies, commodities and metals, including gold, silver and platinum. Bitcoin fits naturally into this structure.
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But, because cryptocurrencies lack a formal designation as either onshore or offshore assets, asset managers remain reluctant to allocate capital to them or offer products such as ETFs that track Bitcoin. Much of financial institutions' 45% allocation limit for offshore investments is already absorbed by foreign stocks and other currencies. A simple onshore designation for digital assets could unlock vast new potential for both the asset industry and the fiscus. An onshore designation is also widely considered to be technically correct and best practice internationally.
Bitcoin ETFs are neither obscure nor especially high-risk instruments. The basic principle remains: don't put all your eggs in one basket. Bitcoin ETFs are just another way to diversify portfolios and distribute risk more effectively.
And over the past decade, Bitcoin has outperformed stocks and bonds on an absolute basis.
According to StatMuse between July 10, 2015 and July 10, 2025, Bitcoin returned 41,261.3% and the S&P 500, a bellwether of the US stock market, returned 205.1%.
This means R1 000 invested in Bitcoin in the early July 2015 would be worth around R413 613 a decade later, while R1 000 in the S&P 500 would return about R3 051.
Bitcoin often behaves differently to equities and bonds, offering investors diversification and a way to earn returns on their money when their other investments are weaker. The cryptocurrency recently reached an all-time high of over R2 010 800, reflecting a more than 1 000% increase in just five years.
Without regulatory clarity, local institutional investors are unlikely to capitalise on cryptocurrency returns, depriving the fiscus of the tax revenue that would otherwise be generated.
Internationally, sentiment has already shifted. BlackRock, the world's largest asset manager, launched its own Bitcoin ETF in 2024 when US regulations permitted such. The Bitcoin ETF surpassed the value of the Bitcoin gold ETF, its previously largest and a long-time store of value In November 2024 and then became the fastest-growing ETF in US history, amassing more than $70 billion (R1.2 trillion) in assets under management by early June 2025. It grew five times faster than the fastest growing ETF, that held the previous record, tracking the gold price, owned by US bank State Street.
In the UK, a pension fund made headlines in late 2024 by strategically allocating 3% of its portfolio to Bitcoin, signalling a fundamental shift in how mainstream finance views the digital asset class.
South African regulations and financial regulators need to keep up with a changing cryptocurrency landscape.
Recently, the Pretoria High Court found exchange control regulations from 1961 were not fit for purpose regarding cryptocurrencies and that with cryptocurrencies having been in existence for 15 years, it was time regulators caught up and accommodated them.
Both a designation of onshore for cryptocurrencies and clearer exchange control regulations around cryptocurrencies are essential. Regulators cannot wish digital assets away or become so draconian, as happened in Nigeria, that trading in cryptocurrencies moved underground to unregulated peer to peer networks, away from any accountability.
It's not just investors who stand to gain from clearer regulation. With transparent and fair rules, digital assets could become a robust new source of tax revenue, something South Africa desperately needs. At present, tax from digital asset gains remains relatively insignificant, because government policy hasn't kept up. The only thing that is keeping a cryptocurrency boost for the South African economy and fiscus is political will.
Marius Reitz General Manager Luno: Africa and Europe
Image: Supplied
Marius Reitz is the General Manager Luno: Africa and Europe
*** The views expressed here do not necessarily represent those of Independent Media or IOL.
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