Petition Against Crypto Tax in South Korea
In a notable development for the cryptocurrency landscape in South Korea, local investors have gathered over 50,000 signatures, allowing them to officially petition the National Assembly to reconsider the implementation timeline for a new crypto tax. This petition aims to postpone the tax’s enforcement from its scheduled start on January 1, 2027, to January 1, 2029. While finance officials maintain that preparations for this tax are progressing, the petition highlights ongoing concerns regarding the current system’s capability to accurately track gains arising from both domestic exchanges and international platforms.
Proposed Tax Structure
Under the proposed regulation, South Korea intends to impose a 20% national tax on profits from the trading and lending of digital assets, supplemented by an additional 2% local income tax, bringing the total to 22%. Each taxpayer would also benefit from a basic annual deduction of approximately 2.5 million won, equivalent to $1,850.
The success of the petition mandates that the National Assembly direct it to a pertinent standing committee, although this referral does not guarantee immediate legislative changes or halt the National Tax Service (NTS) in its preparations for the new tax law.
Concerns Raised by Petitioners
In their appeal, petitioners assert that many cryptocurrency investors are presently facing significant losses, emphasizing that activating the tax now could exacerbate financial burdens, particularly among younger investors who view digital assets as a potential vehicle for wealth accumulation. The petition further raises the alarm about possible capital flight toward offshore exchanges and predicts diminished tax revenues in low trading periods, although it does not provide substantial fiscal estimates or detailed projections of potential investor migration.
Previous Efforts and Current Guidelines
A separate petition previously advocating for the complete elimination of the crypto tax gained traction in May, also securing the necessary signatures, but has yet to yield any changes to the existing law despite reaching committee review by mid-September.
Current guidelines from the NTS stipulate that income from transactions involving digital assets will officially be taxable starting January 2027. This timeline has undergone several postponements since the initial rollout was intended for 2022, with deadlines shifted to 2023, then 2025, and ultimately to the current date.
Taxable Income and Compliance Challenges
For individuals, taxable income is determined based on net proceeds from selling or exchanging digital assets after deducting costs associated with acquisition and transactions. Notably, gains derived from crypto-to-crypto exchanges will also be reportable as the authorities assess the value of the exchanged assets against a benchmark cryptocurrency’s fiat value.
On September 15, during a confirmation hearing, Lee Hyoung-il, the nominee for the deputy prime minister and minister of economy and finance, affirmed that the NTS aims to establish precise tax guidelines before the end of 2026 to facilitate smoother compliance for taxpayers.
In defending the tax structure on crypto gains, Lee highlighted its resemblance to existing taxes on stock transactions, positing that it would enhance equity within the tax system.
However, challenges remain in determining acquisition values for assets that were held prior to the tax’s inception. As per the chosen method, investors will likely need to consider either their documented purchase prices or the market value at the year’s close as the basis for taxation. Regulations also indicate that unverified expenses incurred after the implementation may be estimated through a calculation linked to the sale price.
Future Considerations
The NTS has been urged to employ advanced commercial tools to enhance its tracking capabilities of unreported transactions from private wallets, recognizing the complexities in monitoring every movement on blockchain networks. International data collaboration is also anticipated to become a resource in enforcing compliance, aligning with OECD frameworks set for 2028.
To realize the requested delay, the National Assembly must approve further amendments to modify the launch date of the crypto tax, although no dates for committee hearings or votes had been scheduled as of mid-September 2023.
