In a strategic move ahead of the upcoming general elections, the People Power Party (PPP) in South Korea has announced plans to push for a further two-year delay in the implementation of crypto taxation. The decision to explore the delay as a key campaign promise aligns with the government and legislative consensus to prioritize regulatory groundwork before enforcing taxation on virtual assets. The party argues that a foundational regulatory “system” must first be in place for crypto before taxation can be feasible. This decision comes in the wake of the government’s broader financial policy trends, including the abolition of financial investment income taxes and the relaxation of criteria for major stock transfer income tax shareholders.
One of the key reasons cited by the PPP for the delay in crypto taxation is the lack of a comprehensive regulated trading platform and the challenges in income verification with crypto companies. These obstacles pose significant challenges in effectively collecting tax on virtual assets. As a result, the party believes that taxation needs to be delayed by at least two years to ensure that a comprehensive system is in place to tackle the complexities of crypto taxation.
In addition to the delay in taxation, PPP also plans to propose the second phase of the “Cryptocurrency User Protection Law” during the upcoming 22nd National Assembly. The proposed legislation aims to address gaps identified in the first phase of the law, which was passed in June 2023. The first phase primarily focused on investor protection and penalization of fraudulent activities but was criticized for its limited scope and failure to establish a comprehensive regulatory framework. The new legislation will center around defining custodial service providers, legally incorporating listing systems, and establishing a crypto exchange, among other things, to ensure comprehensive regulation and oversight within the virtual asset market.
While PPP maintains that completely abolishing crypto taxation is not under consideration, the party acknowledges the need for adjustments to the taxation criteria. This includes addressing criticisms of tax disparity between stocks and virtual assets and harmonizing the tax treatment of various asset growth strategies. The party’s leadership emphasized the importance of finalizing electoral promises by February to ensure a timely announcement and signal a swift move towards formalizing this stance as part of their election campaign strategy.
Under the current law in South Korea, income from the transfer or lending of virtual assets exceeding KRW 2.5 million is subject to a 22% tax, including local taxes. This is in stark contrast to the KRW 50 million non-taxable limit for stocks. The proposed changes in taxation criteria aim to address these discrepancies and create a more balanced approach to taxing income from virtual assets.
The political decisions surrounding crypto taxation in South Korea have far-reaching implications for the industry. The delay in taxation, coupled with proposed changes to legislation and taxation criteria, reflect the government’s commitment to establishing a comprehensive regulatory framework for virtual assets. However, the challenges in tax collection and the need for a robust regulatory system highlight the complexity of regulating the crypto industry. It remains to be seen how these proposed changes will impact the market and shape the future of crypto taxation in South Korea.
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