One-Year Postponement of Cryptocurrency Taxation... Positive vs Negative Impacts Divided

Maintaining Growth Drivers of Related Businesses
Meanwhile, Collapsing Tax Equity

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Ultimately, the taxation timing for virtual currencies has been postponed by one year. While positive and negative impacts are anticipated, concerns have been raised that the fundamental principles of taxation could be undermined due to populism.

On the 30th of last month, the National Assembly's Planning and Finance Committee passed an amendment to the Income Tax Act in a plenary session, postponing the taxation timing for virtual currencies by one year from the originally scheduled January 1 of next year. Initially, if capital gains from virtual currency transfers exceeded 2.5 million KRW annually, a 22% tax as miscellaneous income was to be imposed. However, ahead of the presidential election, the taxation was delayed to capture the votes of the 2030 generation and because the taxation system is still underdeveloped.

Positive Impact: Sustained Growth of the Virtual Currency Market

This tax deferral decision has given the virtual currency industry some relief. There had been concerns that investment sentiment toward virtual currencies would decline due to relatively harsh taxation standards compared to stocks. For stocks, from 2023, capital gains exceeding 50 million KRW annually are subject to financial investment income tax, whereas for virtual currencies, only 2.5 million KRW is exempted, causing dissatisfaction among virtual currency investors.

Furthermore, the growth momentum of businesses utilizing virtual currencies is expected to be maintained. Recently, companies including game developers and entertainment firms have been actively entering the Non-Fungible Token (NFT) business. It is anticipated that numerous NFT-based products will be released next year, and the NFT industry is expected to grow significantly during the one-year tax deferral period.

Negative Impact: Continued Erosion of Tax Equity

However, it seems difficult to avoid criticism that the broad principle of tax equity has been compromised. The fundamental taxation principle that income should be taxed, as well as alignment with tax policies of other countries, is not met. Major countries such as the United States, Japan, the United Kingdom, France, Germany, and Australia already tax virtual currencies. In the U.S., although the main regulatory body has not been designated and the federal government has not provided a clear definition of virtual currencies, agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) manage them depending on the situation.

There is also a possibility that taxation could be further delayed. One reason cited for the current tax deferral is the difficulty in tracking capital gains from overseas virtual currency exchanges and peer-to-peer transactions. One taxation plan is to receive tax data from overseas exchanges through cooperation with foreign governments, using anti-money laundering measures as a link, but this lacks practicality. The world's largest virtual currency exchange, Binance, has already refused to register as a domestic virtual asset service provider.

Professor Hong Ki-hoon of Hongik University's Department of Business Administration stated, “Just as barter and cash transactions cannot be taxed, peer-to-peer virtual currency transactions cannot be tracked,” and expressed concern that “for the same reason, virtual currency taxation may continue to be postponed.”

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