The South Korean government has once again postponed the contentious 20% crypto gain tax for the second time.
Earlier the tax was to come into effect in 2023 and it has now been pushed for 2025, as the crypto market has become stagnant.
Announcing the new tax reforms, the South Korean government has deferred the crypto gain tax in order to save investors due to the current crypto market scenario. The government has initially planned to impose a tax on crypto gains of over $1,900 per year.
Kim Young-jin, the chairman of the Tax Subcommittee, has advocated for the creation of strong crypto regulation first and has objected to crypto tax policy.
Under a recently elected pro-crypto president, Korea aims to first regulate the cryptocurrency market before passing tax laws. Taxing cryptocurrencies has been the government’s top objective as the cryptocurrency industry has risen to unprecedented heights over the past few years.
Thailand proposed a 15% tax on cryptocurrency earnings, similar to South Korea’s plan of a 20% tax, but it faced fierce opposition from the retail sector and ultimately had to abandon the tax idea.
The South Korean president-elect Suk-yeol during its election campaign has said that it would be contradictory to impose taxes on crypto assets in the nation’s system without a clear basis for doing so legally.
In order to maintain transparency and investor protection, it would be preferable to delay the tax until the crypto market has reached maturity and the new law has been carefully drafted.
Suk-yeol vowed to delay taxation on cryptocurrency assets for two years and to eliminate the capital gains tax in order to aid small investors.
The Digital Asset Basic Act (DABA) will be presented to lawmakers sometime in 2023, according to President Yoon’s objectives for the cryptocurrency and Web 3.0 ecosystem in South Korea.
Prior to the presidential election, candidates from both parties tried to win over millennial and Gen Z voters with their platforms.
Other nations that have enacted similar cryptocurrency levies have encountered major issues. Thailand suggested taxing cryptocurrency gains at 15%. However, the new taxing regime infuriated the retail dealers in Thailand. The tax policy was ultimately abandoned by the administration.
India started taxing cryptocurrency at a rate of 30% on 1 April 2022, which came into existence on 1 July 2022. The impact of high taxes on the nation’s cryptocurrency exchanges has been devastating, with trading volumes falling by more than 90% within weeks of the adoption of new tax regulations.
South Korea is one of the leading nations with the highest level of crypto activities. According to research by the country’s top financial regulator, the Korean market increased to $45.9 billion by December 2021 and had over 5.58 million crypto users, which accounts for 10% of the population.
In the country, due to governmental limitations majority of the trade is done on the top five local crypto exchanges that are namely Upbit, Bithumb, Coinone, Korbit, and Gopax. On the other side, foreign and smaller players find it more difficult to comply with the government’s mandate to work with regional commercial banks.
Cryptocurrency is categorized as a virtual asset by the National Assembly Research Service (NARS) of South Korea, which offers information and research on legislative and policy matters to parliamentarians.
Crypto is not legal in South Korea
Although the market for bitcoin and other cryptocurrencies has expanded significantly in recent years, they are not officially recognized as financial assets or legal cash in South Korea. When compared to April of the previous year, the daily trading volume of cryptocurrencies surged more than twelve times, even surpassing the value of shares traded on the stock exchange.
What’s notable is that the industry’s expansion is heavily dependent on cryptocurrency trading. South Korea forbids domestic Initial Coin Offerings (ICO), and the market for crypto asset management is very small. Mining operations for cryptocurrencies aren’t very profitable in South Korea; hence they’re not very common.
Looking at the crypto market boom in 2017, South Korea’s authorities started to control the irrational market; they also imposed much legislation asking all the crypto service providers to register with the Financial Intelligence Unit (KFIU), the Financial Services Commission’s anti-money laundering department by September 24, 2021.
These regulations have a huge toll on crypto companies, but, with millions of users entering the market, compelled the government to look at the crypto sector as a digital asset.