One of Virtual Asset Tax Deferral or Deduction Increase Likely to Be Implemented Within the Year

Ruling and Opposition Parties Agree on Tax Deferral... Calls to Discuss Increasing Deductions After Enacting Business Law
Government "Taxation as Scheduled"... Strong Opposition to Raising Deduction by 50 Million Won

[Image source=Reuters Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] Measures to postpone the start of taxation on virtual assets or to raise the deduction limit (2.5 million won) are expected to be introduced within this year. The option to postpone the taxation start date from next year to 2023 is primarily being discussed, and discussions to raise the deduction limit after enacting a virtual asset industry law are also planned.

According to the government and the National Assembly on the 14th, the Tax Subcommittee of the National Assembly's Planning and Finance Committee, which begins on the 15th, will discuss ways to ease the tax burden on virtual assets. The current Income Tax Act treats income generated from the transfer or lending of virtual assets as "other income" and applies a 20% income tax rate on the portion exceeding 2.5 million won. The taxation start date is set for 2022.

There is a consensus between the ruling and opposition parties to postpone the taxation start date on virtual assets from next year to 2023. Yoon Hojung, floor leader of the Democratic Party of Korea, appeared on KBS Radio on the 12th and mentioned issues with the taxation infrastructure for virtual assets, stating, "It would be better to align the taxation start date with 2023, when the taxation system for financial investment income fundamentally changes." Lee Jae-myung, the Democratic Party's presidential candidate, recently pledged on his social media (SNS) to postpone the taxation start date on virtual assets from next year to 2023 and to significantly raise the deduction limit. The People Power Party also agrees with postponing the taxation start date. On the 8th, Choo Kyung-ho, a member of the People Power Party, stated at the National Assembly's Planning and Finance Committee plenary session, "The basic policy of the People Power Party is to postpone virtual asset taxation for more than one year." The campaign team of Yoon Seok-youl, from the same party, has not presented any particular opinion.

The government maintains its position that taxation should begin next year as stipulated in the current Income Tax Act. If the tax law is amended through bipartisan agreement, the government has no physical means to block it. While the government’s stance cannot be completely ignored by the political circles, if the ruling and opposition parties reach an agreement, it is highly likely that the National Assembly’s intention will prevail.

However, within the ruling party, there are reports of discussions to accept the government’s position to tax from next year but to enact an industry law regulating the virtual asset sector and raise the deduction limit. Raising the deduction limit is more complicated than postponing the taxation start date. The current law stipulates that from 2023, income from overseas stocks, unlisted stocks, bonds, and derivatives will be combined and a deduction of 2.5 million won applied, while domestic listed stocks have a deduction limit of 50 million won. The deduction limit for income from financial products is set at 2.5 million won, with only domestic listed stocks having a higher limit of 50 million won. Regarding deductions on virtual asset income, candidate Lee said, "We will significantly raise the limit," without specifying an exact amount. A partial amendment bill to the Income Tax Act, proposed by ten Democratic Party lawmakers including Roh Woong-rae, includes provisions to treat income from the transfer or lending of virtual assets as financial investment income and to combine it with other income for a deduction limit of 50 million won (currently 2.5 million won). Representative Choo also said about raising the deduction limit, "If the taxation start date is postponed first, the limit can be discussed later."

The government strongly opposes raising the deduction limit to 50 million won. From the perspective that investors’ assets will flow into industries, the government argues there is no reason to extend the benefits given only to domestic listed stocks, which were justified by increasing the deduction limit for the domestic stock market, to virtual assets. The government also raises issues of fairness with unlisted stocks, bonds, derivatives, and overseas stocks, which have a deduction limit set at 2.5 million won.

Within the ruling party, there is also a considerable view that raising the deduction limit is preferable to postponing the taxation start date. The logic is that expanding the deduction limit is a more fundamental way to ease the tax burden. The plan is to first enact a separate industry law to regulate the virtual asset-related industry and then raise the deduction limit based on that. Whether the taxation start date is postponed or the deduction limit is raised, since taxation will begin next year, there is a prevailing view that some form of tax relief measure must be concluded during this regular session of the National Assembly. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, recently opposed postponement at the National Assembly’s Planning and Finance Committee, stating, "If the ruling and opposition parties agree to amend the law regardless of the government’s opinion, there is no choice, but it seems unreasonable to force a postponement when there was bipartisan agreement in the past and preparations for taxation are already in place."

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