Disaster Relief Funds and Virtual Asset Tax Deferral... Clash Between Ruling Party and Government Inevitable

Lee Jae-myung, the Democratic Party presidential candidate, is attending the Central Election Countermeasures Committee meeting held at the National Assembly on the 3rd and delivering an opening remark. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporters Juyoun Oh, Sunhee Son (Sejong)] The ruling party’s decision to push ahead with expanding cash-type fiscal support and postponing taxation on virtual assets despite government opposition is expected to lead to inevitable clashes between the party and the government. While the Ministry of Economy and Finance opposes the postponement of virtual asset taxation, even the Prime Minister has publicly opposed the nationwide disaster relief payments. However, the ruling party has decided to adopt the tax deferral policy as its official party stance. As the party and government take a hardline stance against each other, this issue is expected to become a major topic during the review of next year’s budget and tax law amendments, which will intensify in mid-month.

No Woong-rae, head of the Democratic Research Institute and a member of the Democratic Party, said in a phone interview with Asia Economy on the 3rd, “The party’s position has been settled for now,” adding, “Taxation on virtual assets should begin in 2023 under the same conditions as the taxation of other financial assets.” This means adopting the postponement of virtual asset taxation as the party’s official stance. This aligns with Democratic Party presidential candidate Lee Jae-myung’s statement in a media interview last May, where he mentioned that the timing of virtual asset taxation should coincide with the start of capital gains tax on stocks in 2023.

No said, “It is difficult to accept taxation only on virtual assets in advance,” and added, “Institutionalizing virtual asset transactions should come first, followed by taxation, which is the proper approach.” The Democratic Party also plans to reflect the industry’s position by classifying virtual assets as ‘financial investment income’ for taxation purposes.

Since Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, is currently on an overseas trip for President Moon Jae-in’s participation in the G20 summit and the London Korea Economic Briefing (IR), the Ministry of Economy and Finance is refraining from official responses as much as possible. However, behind the scenes, there is a heated atmosphere as the party unilaterally announced the policy without any consultation with the tax authorities. A Ministry of Economy and Finance official dismissed the claim for postponing virtual asset taxation as “just the party’s opinion,” emphasizing, “The Ministry’s position has not changed.”

In particular, the need for virtual asset taxation arose in 2017 when the value of virtual assets such as Bitcoin surged, and there were frequent cases of individuals earning tens or hundreds of millions of won in profits without paying any taxes. Since then, the government has been communicating with the related industry for about four years to establish a taxation system.

The National Assembly also started from discussions to eliminate this ‘tax blind spot’ and has already amended and passed the Income Tax Act. The law established a legal basis for taxation by classifying profits from virtual asset investments as ‘other income,’ similar to lottery winnings, applying a tax rate of about 20%. Originally, the tax was to be applied after a grace period of about nine months starting last month, but it was postponed once and delayed until January 1 of next year, effectively granting a total one-year grace period. During this period, the National Tax Service operated a related task force (TF) and held two taxation consultations centered on the four major virtual asset exchanges.

The government also holds a negative stance on candidate Lee’s sudden proposal for ‘nationwide disaster relief payments.’ Prime Minister Kim Boo-kyum said on a radio program that morning, “Currently, there is no immediate fiscal capacity,” and added, “From the government’s perspective, the most urgent issue is how to help the approximately 2.5 to 3 million small business owners and self-employed people who have suffered cumulative damage for over a year and a half and cannot be assisted under the Loss Compensation Act.”

However, Democratic Party presidential candidate Lee Jae-myung immediately responded, urging, “Please actively pursue the additional payment of disaster relief funds that can care for the lives of all citizens and revitalize the economy.” Lee chaired the first campaign committee meeting at the National Assembly and said, “We must care for small business owners directly affected by COVID-19 and the livelihoods of citizens who have been indirectly and widely affected,” emphasizing, “It is not about increasing debt recklessly, but we need to recognize that the national debt ratio is not a major obstacle.” He also called for increasing the minimum level of COVID-19 loss compensation and devising new alternatives for those excluded from compensation.

Ultimately, with the presidential election as a political event approaching, there is criticism that the premature announcement of pledges and policies without party-government discussions is causing public confusion. The opposition parties, including the People Power Party, immediately condemned it as “vote-buying by the ruling party.” Former President Yoon Seok-youl criticized Lee’s remarks the day before as “unverified pledges,” and former lawmaker Yoo Seung-min pointed out on the radio that it was “vote-buying ahead of the election.”

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