Arbitrage is a practice whereby traders look to profit from the differences in the price of an asset on different exchanges. Each South African taxpayer is entitled to a special discretionary allowance (SDA) of R1 million a year and a foreign investment allowance (FIA) of R10 million a year, which they can invest out of the country.
As such, South Africans are using their allowances to purchase crypto assets on overseas exchanges before moving the funds to local exchanges for sale at higher prices.
It is reported the price differences in assets has ranged from 0 and 3% in recent months.
The old online tax filing system made it easy to move funds to foreign exchanges and back locally. No permissions are required for utilizing the SDA, but South Africans making use of the FIA need a tax clearance. Most crypto arbitrage trades are in lots of R100, 000 or R200 ,000 which requires multiple approvals from SARS.
Until recently, those approvals could be obtained by going online and hitting a PIN ‘refresh’ button on the SARS website once the initial FIA approval had been granted. SARS would issue a new PIN each time an approval was sought.
However, SARS recently updated its eFiling system, so that each time the ‘Refresh’ button is hit, the PIN remains unchanged. Now, a fresh approval process is required for a single trade someone wants to make.
Crypto exchange, VALR, says this means local banks now have no way of telling the difference between old and refreshed PINs that are “generated to send the same capital originally applied for in an FIA application to an international beneficiary.”
“The implication of this is that refreshed FIA pins will not be accepted as valid PINs for the purposes of arbitrage trading and an entirely new FIA application will need to be made in order to conduct further arbitrage trading under FIA once the original FIA pin is exhausted.”
Jon Ovadia, CEO of South Africa’s cryptocurrency prime broker, OVEX, however says that the change to the SARS online filing system adds time delays, but does not diminish the crypto arbitrage opportunity.