Government Considers 20% Tax Rate as 'Other Income Tax' on Cryptocurrency

[Asia Economy Reporter Kwangho Lee] The government is considering treating income earned from virtual currencies such as Bitcoin as 'temporary other income,' similar to lottery winnings and lecture fees, and applying a 20% tax rate.

Other income is a concept that encompasses all income not classified as interest, dividends, business, labor, pension, retirement, or capital gains income. The most representative types of other income include prize money, lottery winnings, manuscript fees, royalties, and lecture fees. Generally, 60% of other income is deducted as necessary expenses, and the remaining 40% is taxed at a 20% income tax rate.

On the 20th, the Ministry of Economy and Finance has been working on practical measures to include specific taxation methods and grounds in this year's tax law amendment after setting the income tax taxation policy for virtual currencies in the second half of last year.

To properly impose capital gains tax on virtual currency income, it is necessary to accurately identify both the acquisition price and the sale price to calculate the difference. This is only possible if the amendment to the 'Act on Reporting and Using Specified Financial Transaction Information' (Special Financial Transactions Act), currently pending in the National Assembly, is passed and implemented, allowing transaction details to be received daily from virtual currency exchanges.

However, in the case of other income tax, it is possible to immediately consider the final transaction amount as the sale amount and tax it after deducting a certain percentage of necessary expenses (such as 60%).

The National Tax Service has recently classified virtual currency income of non-resident Koreans (foreigners) as 'other income' and indirectly collected taxes through the withholding agent Bithumb (a virtual currency exchange).

There is also an interpretation that this is a 'test' for imposing 'other income tax' on domestic virtual currency holders. However, if other income tax is applied to domestic virtual currencies as well, issues such as the calculation of acquisition and reference prices and controversies over the qualification of virtual currency exchanges as withholding agents are expected to intensify.

Regarding this, a Ministry of Economy and Finance official said, "Nothing has been decided yet," withholding further comments.

Meanwhile, on the 17th, the price of Bitcoin surpassed 10 million won. This is two months after the 10 million won level was broken in November last year.

This content was produced with the assistance of AI translation services.