South Korea’s Crypto Tax Debate: A Political Tug of War
South Korea is currently caught in a heated debate over the impending taxation of cryptocurrency assets. The opposition party, People Power Party (PPP), has introduced a bill to halt the income tax on digital currencies, drawing inspiration from the United States’ regulatory guidance on asset classification. Concerns about potential double taxation and discrepancies within the existing tax framework have also fueled this legislative move.
South Korean Legislators Advocate for Crypto Tax Repeal
According to a report by Digital Asset, the People Power Party has officially proposed amending the Income Tax Act in South Korea, which is slated for implementation next year. Spearheaded by Song Eun-seok, the PPP’s Floor Leader, this legislative initiative aims to eliminate the taxation on digital assets. If passed, the amendment would revoke all current provisions related to crypto asset taxation.
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Currently, the law mandates a 20% income tax rate on crypto assets, potentially increasing to 22% when local taxes are factored in, effective January 1, 2027. This includes a deduction limit of 2.5 million won. Initially, the government intended to enforce a 20% tax on crypto profits by January 2022. However, this enforcement has faced multiple delays, with the most recent postponement extending the implementation to January 2025.
This delay sparked a clash between the People Power Party and the Democratic Party of Korea (DPK), with the former supporting the postponement and the latter advocating for a higher tax deduction limit of 50 million won. Eventually, the DPK agreed to defer the tax until 2027.
The proposed amendment highlights the recent guidance from the US Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC), which classify most digital assets as commodities. This classification raises concerns in South Korea about subjecting these assets to the same tax system as securities.
The bill argues that since digital assets are already categorized as commodities in South Korea and are subject to the value-added tax system, imposing an additional income tax could lead to double taxation. The amendment stresses that taxing digital assets separately could undermine the fairness and coherence of the tax system, especially since the financial investment income tax has been abolished to foster capital market growth and safeguard investors.
In the event of future income tax imposition, significant practical and administrative hurdles are anticipated, such as calculating the acquisition cost for non-resident foreigners, potentially diminishing the system’s efficacy.
Democratic Party’s Stance on the Tax Amendment
In light of the People Power Party’s endeavor to repeal the 20% crypto taxes, the Democratic Party of Korea has agreed to evaluate the newly introduced amendment. Kim Han-kyu, the DPK’s Senior Deputy Floor Leader for Policy, acknowledged the concerns about tax equity between stocks and crypto assets, as well as the consistency of the Korean tax system.
“There is a call to achieve parity between the stock and digital asset markets concerning taxation,” Kim commented following a general assembly of lawmakers.
Despite these concerns, Kim revealed that the ruling party had not seriously considered abolishing the forthcoming crypto taxation, as it had not reached a consensus within the party. The bill introduced by the PPP had not been previously discussed with the ruling party, although DPK legislators have now committed to reviewing it in the Finance and Economy Committee.
Nevertheless, the party’s previous stance was to maintain the existing bill while advocating a higher deduction limit, indicating that the proposed amendment may face limited support from the DPK.
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