Stubborn crypto rule costs SA half a billion in taxes

SOUTH Africa could generate at least R540 million in additional tax revenue by updating a single element of its cryptocurrency regulations to align with global best practices, according to an analysis by Luno, one of the world’s oldest and largest cryptocurrency exchanges.

The findings, shared in a media statement by Marius Reitz, Luno’s general manager for Africa and Europe, highlight the untapped potential of digital assets in bolstering the country’s strained fiscus amid sluggish economic growth and mounting debt.

Reitz emphasised that Bitcoin and other digital assets have vastly outperformed traditional investments such as stocks and bonds over the past decade, yet South African institutional investors are missing out due to regulatory hurdles.

“Recently, Bitcoin reached an all-time high of over R2 010 800, showing over 1 000% growth in five years,” Reitz said. “But local asset managers are restricted from offering products like Bitcoin Exchange Traded Funds (ETFs), which could unlock significant returns — and tax revenue.”

Luno’s “conservative” estimate of R540 million in additional tax assumes just 1% of institutional funds flowing into a digital asset product like a Bitcoin ETF, factoring in modest returns and applicable tax rates.

Currently, South Africa does not classify digital currencies as either offshore or onshore assets, creating uncertainty for asset managers.

“This makes it difficult for asset managers to offer products such as ETFs that track the underlying value of cryptocurrencies like Bitcoin,” Reitz said. “If digital assets were designated as ‘onshore’ — as seen in other global markets — South Africa could harness this growth, leading to higher investment, profits, and capital gains tax for the fiscus.”

The global trend is already proving the potential. BlackRock, the world’s largest asset manager, launched a Bitcoin ETF in 2024, which swiftly amassed over $70 billion (R1.2 trillion) in investments — making it the fastest-growing ETF in BlackRock’s history.

Reitz pointed to international examples where institutional investors were increasingly integrating digital assets into traditional portfolios.

“Late last year, the first UK pension fund allocated 3% of its portfolio to Bitcoin,” he said. “This marks a fundamental shift in how finance experts view cryptocurrencies — not as speculative assets, but as strategic investments.”

For South Africa to stay competitive, Reitz urged regulators to provide clear exchange control designations for both individual and institutional investors.

“Digital assets hold immense promise as a source of increased tax income in a country that desperately needs it,” he emphasised. “Right now, regulatory obstacles are limiting the tax generated from digital asset returns. The industry can, and should, contribute to South Africa’s inclusive growth.”

With the right regulatory adjustments, South Africa could unlock a R540m revenue boost while positioning itself as a leader in the fast-evolving digital asset economy.

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