South Korean Officials Seek to Delay Cryptocurrency Tax Implementation to 2029

South Korea's Cryptocurrency Tax Postponement Proposal

In South Korea, members of the ruling Democratic Party are advocating for a further postponement of the nation’s cryptocurrency tax, with a two-year delay now being the leading proposal, pushing the start date to 2029. This decision emerged from a November 3 meeting of the National Assembly’s Finance, Economy and Planning Committee, which included discussions with government officials. Concerns surrounding the readiness of digital asset regulations, the adequacy of overseas transaction data, and the operational capacity of cryptocurrency exchanges were central to the deliberations, according to the Seoul Economic Daily.

Lawmakers' Commitment and Concerns

Democratic Party’s committee secretary, Oh Ki-hyung, conveyed to the media that lawmakers remain committed to the principle of taxing cryptocurrency income but believe additional time is necessary for a proper implementation.

“While we support the idea that income should be taxed where it is generated, current conditions necessitate further preparation,”

he stated.

This proposal will now be reviewed by party leaders and their policy committee, who will discuss the feasibility of extending the tax delay. Although a majority of committee members lean towards a two-year delay, this recommendation has yet to receive official sanction. Currently, the law mandates that taxation on crypto income should commence on January 1, 2027.

Challenges in Tax Implementation

A significant issue raised during their discussions was the government’s capability to obtain accurate transaction data from international cryptocurrency exchanges. Participants highlighted the Crypto-Asset Reporting Framework implemented globally by the Organisation for Economic Co-operation and Development, which aims to assist tax authorities in exchanging information regarding cryptocurrency transactions. South Korea plans to engage with this reporting framework by 2027, with the United States set to commence from 2029, a timeline disparity that has intensified discussions on when taxation should truly start.

Oh stressed that effective enforcement of the tax would necessitate access to records of overseas transactions, especially as the international reporting framework advances. This pressure has led Democratic Party member Park Min-gyu to propose a linkage between the initiation of cryptocurrency taxation and the commencement of these international exchanges of transaction information. His bill aims to start the tax on January 1 of the year following the first qualifying exchange of transaction data under the CARF.

Challenges also arise for local exchanges when investors transfer cryptocurrencies from foreign platforms. In situations like this, domestic operators may have receipt records of the assets but lack information on their initial purchasing prices, complicating the calculation of taxable gains. Despite these hurdles, the National Tax Service (NTS) believes that inadequate overseas documentation shouldn't preclude taxation. Deputy Commissioner Park Hae-young suggested that available foreign account data along with CARF details could help bridge reporting gaps.

Future Legislation and Tax Structure

Lawmakers are also contemplating how the forthcoming Digital Asset Basic Act might influence the current tax structure. This legislation, which is nearing the end of its consultation phase, is designed to clarify the framework governing cryptocurrency businesses and transactions within South Korea.

During October’s discussions, it was reported that Bithumb estimated a six to nine-month period would be needed to develop and test its reporting infrastructure post approval from authorities. Currently, South Korea’s cryptocurrency tax framework, which was first approved in 2020, has seen several postponements from its original 2022 implementation date to 2023, then later to 2025, and most recently pushed to 2027 due to ongoing disputes over investor protections and the overall readiness of tax collection systems.

Under the existing framework, annual cryptocurrency income exceeding 2.5 million won is taxed at 20%, with local income tax bringing the total effective rate to 22%. These rules cover income derived from selling or lending cryptocurrencies, though losses cannot be carried into future years. If the current schedule holds, individuals would report their taxable income for 2027 in May 2028.

Investor Uncertainty and Future Guidelines

As discussions continue, the uncertainty around the possibility of a tax delay raises questions for investors on how to ascertain their taxable profits. Recent analyses regarding cryptocurrency cost basis suggested that the taxation rules could consider either the original acquisition cost or the designated market value at the onset of taxation for assets acquired before the law takes effect. The NTS is expected to release new guidelines by November regarding treatments for staking rewards, airdrops, hard forks, and decentralized finance transactions.

Lawmakers aim to finalize their stance on the matter in the coming weeks, influenced by prior discussions that highlighted divides within the party regarding the timing of taxation. Moreover, the presidential office has lent its support to the idea of further delaying the tax, while the opposition party has either pushed for an extended postponement or a complete repeal of the crypto income tax. High-level discussions are scheduled for this weekend to address potential changes, particularly in regards to amending the Income Tax Act for this purpose.