The country’s cryptocurrency business has been flipped upside down by the imposition of tighter operating rules tomorrow.
South Koreans were early adopters of bitcoin – the country launched the first Bitcoin exchange in July 2013. They have been ardent investors, with the peninsula experiencing several bouts of nationwide crypto fever.
South Korean investors, particularly younger ones seeking to keep up with rising living costs, have taken a strong interest in the bullish crypto market, and on Sept. 8, the entire volume of cryptocurrency transactions in Korea exceeded that of the KOSPI, the domestic stock market.
Kimchi premium, a term that refers to the premium that cryptocurrencies such as Bitcoin command in the Korean market above pricing in other markets, made a resurgence in April following the 2017 Initial Coin Offering (ICO) craze. South Korean investors witnessed the domestic Bitcoin price surge past US$70,000 at one point, which was 21% higher than the rest of the world. Previously, bitcoin and cryptocurrency investment expertise dominated headlines in Korea; now, the focus is entirely on the government’s crackdown on the industry.
Taxing cryptocurrency and the ensuing reaction
Beginning in late 2020, Korean authorities will begin taxing cryptocurrency trading earnings. On Jan. 6, a revised Revenue Tax Law was released, requiring cryptocurrency income to be taxed beginning in 2022. The new law will tax 20% of profits from cryptocurrency transactions above 2.5 million Korean won, or around US$2,200. Korea’s National Tax Service (NTS) has since broadened the scope of the crypto tax law to include overseas cryptocurrency exchanges and enterprises.
Investor backlash was quick. Many claimed that it was unjust because crypto income will be taxed at a rate of 2.5 million won, while stock capital gains will be taxed at a rate of 50 million won, or around US$42,400. Additionally, stock capital gains will be taxed beginning in 2023, a year after crypto is taxed.
The issue at hand is virtual asset categorization. At the moment, virtual assets are classified as “other income,” which includes gains from trading in art. The government stated that income from specific financial investments receives unique tax benefits, and virtual assets are not classified as financial assets in South Korea, resulting in a lower tax deduction threshold.
Industry representatives and some lawmakers argue that the crypto tax should be delayed for one to two years to allow for a more precise definition of crypto. Yun Chang-hyun and Yoo Gyeong-Joon of the conservative party introduced bills to delay the tax, while Noh Woong-rae of the democratic party recommended classifying crypto capital gains as income from financial investment.
South Korea’s finance minister, Hong Nam-ki, addressed the National Assembly on this subject on Sept. 15, ruling out any possibility of deferring the crypto tax. Hong stated that tax is required where income exists and that deferring the tax will merely create market confusion.
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