In a strategic step ahead of the upcoming general elections, the South Korea’s ruling party, the People Power Party (PPP), has unveiled its intentions to advocate for a further two-year postponement in the implementation of crypto taxation. This move was disclosed during a press conference on Feb. 19, where party officials highlighted the delay as a significant campaign promise. The proposed delay would entail pushing back the commencement of taxation to January 2025, aligning with the government and legislative emphasis on establishing a regulatory infrastructure before imposing taxes on virtual assets.
Challenges in Taxation Implementation
The decision made by the PPP underscores the necessity of having a robust regulatory framework in place before embarking on crypto taxation. The party argues that without a solid regulatory “system,” the effective collection of tax on virtual assets would face obstacles such as the absence of a comprehensive regulated trading platform and the difficulties in verifying income with crypto companies. Consequently, the party deems it imperative to delay taxation by at least two years to ensure the presence of a comprehensive system capable of handling the intricacies of crypto.
Moreover, the PPP intends to introduce the second phase of the “Cryptocurrency User Protection Law” in the upcoming 22nd National Assembly to address the deficiencies identified in the initial phase of the legislation, enacted in June 2023. The first phase of the law mainly focused on safeguarding investors and penalizing fraudulent activities but faced criticism for its limited scope and failure to establish a comprehensive regulatory framework. The forthcoming legislation aims to define custodial service providers, legally integrate listing systems, and establish a crypto exchange, among other measures, to enhance regulation and oversight within the virtual asset market.
Although the PPP asserts that it is not contemplating the complete abolition of crypto taxation, the party is open to revising the taxation criteria to address concerns regarding tax disparities between stocks and virtual assets. The proposal seeks to harmonize the tax treatment of various asset growth strategies, recognizing the challenges associated with tracking investment amounts and returns for taxation purposes. The leadership of the party expressed the urgency of finalizing essential electoral pledges by February to ensure a timely announcement, signaling a swift progression towards formally embedding this stance into their election campaign strategy.
Current Taxation Laws
The existing law dictates that income derived from the transfer or lending of virtual assets exceeding KRW 2.5 million is subject to a 22% tax, inclusive of local taxes, in stark contrast to the KRW 50 million non-taxable threshold applicable to stocks. This difference highlights the need for reconciling the taxation standards between traditional assets like stocks and emerging ones like virtual assets.
Through these proposed delays and regulatory enhancements, South Korea’s ruling party aims to strike a balance between fostering the growth of the crypto market and ensuring a fair and effective taxation system that aligns with the evolving financial landscape.