Progress on the Digital Asset Basic Act in South Korea
In South Korea, the path toward the implementation of the Digital Asset Basic Act is nearing completion, as financial authorities finalize discussions with an eye on promptly advancing the legislation. This development comes amid ongoing debates among legislators about the practicality of initiating cryptocurrency taxation before a coherent regulatory framework is established. As reported by Yonhap News Agency on October 22, Lee Eog-weon, the Chairman of the Financial Services Commission (FSC), addressed the National Assembly’s Political Affairs Committee, asserting that the legislation’s discussions were nearly at an end, and that processes would be expedited to avoid any further delays.
Concerns Raised by Opposition
During a recent parliamentary audit, opposition members raised concerns regarding the government’s progress in fulfilling commitments made earlier this year, particularly during a presidential briefing. Lawmaker Song Eon-seok from the People Power Party highlighted that although officials promised to draft a government proposal back in July, no finalized version had been made public yet.
Aims of the Digital Asset Basic Act
The Digital Asset Basic Act aims to provide a regulatory framework for cryptocurrency businesses, including the licensing of exchanges and the issuance of stablecoins. However, critical elements, such as the oversight of trading platforms and the criteria for issuing won-denominated stablecoins, remain contested among legislators.
Upcoming Legislative Review
In a related report, crypto.news noted plans for the National Assembly to review the next stage of digital asset legislation in November. The FSC indicated that this would involve the bill review subcommittee of the National Assembly, although specifics regarding submission dates or consensus on outstanding issues were not established in the recent discussions.
Contemplation of Cryptocurrency Income Tax
Notably, lawmakers are contemplating whether to roll out cryptocurrency income tax for investors ahead of the completion of the regulatory framework. Song advocated that the government should first clarify the classification of digital assets and their regulatory treatment, suggesting either the suspension or cancellation of the planned tax until relevant legislation is in place. Lee refrained from taking a stance on this proposal, instead noting that the Ministry of Finance and Economy was gathering insights from stakeholders about taxation’s viability.
Current Tax Framework and Delays
Currently, South Korea has set a plan to enforce a 22% tax on cryptocurrency profits exceeding 2.5 million won, split between a 20% national income tax and a 2% local income tax. This framework was introduced through amendments to the Income Tax Act in 2020 but has faced delays, with the latest implementation date pushed to January 1, 2027. Any further changes to this schedule would necessitate legislative action, and last week’s discussions did not yield any new decisions regarding possible extensions.
Preparations and Ongoing Discussions
Despite the political push for postponement, preparations are ongoing. The National Tax Service has been working on guidelines that include the treatment of staking rewards, airdrops, hard forks, and decentralized finance transactions. In a parliamentary session earlier this month, tax officials disclosed that they are in consultations with exchanges about reporting systems and the handling of various cryptocurrency transaction types. Notable exchanges like Upbit, Bithumb, Coinone, DigitalX, and Gopax are involved in these discussions, which seek to address implementation challenges of the upcoming tax.
Petition for Tax Delay and Regulatory Challenges
An additional petition circulating in September requesting a two-year tax delay garnered the necessary signatures for parliamentary review, although it does not guarantee an automatic suspension of the tax. The proposed regulatory structure is also dealing with unresolved issues concerning stablecoin issuance, including whether bank-led entities should take precedence in launching won-backed tokens and potential ownership restrictions for cryptocurrency exchanges. The Bank of Korea has voiced apprehensions about privately issued stablecoins, while concurrently working on establishing systems for tokenized deposits and institutional digital currencies.
Conclusion
As of now, both the financial regulator’s comments and the tax authority’s administrative timeline do not indicate when the National Assembly will review a finalized version of the Digital Asset Basic Act or whether additional delays in cryptocurrency tax implementation will be approved.
