In a recent strategic move ahead of the upcoming general elections, South Korea’s ruling party, the People Power Party (PPP), has announced plans to push for a further two-year delay in the implementation of crypto taxation. This decision, revealed during a press conference on Feb. 19, aims to explore the possibility of postponing the commencement of taxation to January 2025. The rationale behind this move is to ensure that a solid regulatory foundation is established before enforcing taxation on virtual assets.
Challenges in Tax Collection
The PPP argues that before taxation can be deemed feasible, there needs to be a comprehensive and regulated trading platform in place. Additionally, the challenges in income verification with crypto companies present significant obstacles in effectively collecting tax on virtual assets. Therefore, the party believes that a delay of at least two years is necessary to develop a system that can address the complexities associated with taxing crypto.
As part of their strategy, the PPP plans to propose the second phase of the “Cryptocurrency User Protection Law” during the upcoming 22nd National Assembly. This legislation is intended to address the gaps identified in the first phase of the law, which was passed in June 2023. The focus of the proposed legislation will be on defining custodial service providers, legally incorporating listing systems, and establishing regulations for crypto exchanges. This initiative aims to create a comprehensive regulatory framework for the virtual asset market.
Adjustments to Taxation Criteria
Despite advocating for a delay in taxation, the PPP maintains that completely abolishing crypto taxation is not under consideration. The party believes in taxing income but is exploring adjustments to the taxation criteria. They aim to address criticisms of tax disparity between stocks and virtual assets by harmonizing the tax treatment of various asset growth strategies. This includes acknowledging the challenges in tracking investment amounts and returns for taxation purposes.
The leadership of the PPP emphasized the importance of finalizing central electoral promises by February for a timely announcement. This signals a proactive move towards formalizing their stance on crypto taxation 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 decision to delay crypto taxation in South Korea reflects a strategic approach to ensuring a comprehensive regulatory framework is in place before enforcing taxation on virtual assets. By addressing challenges in tax collection, proposing improved legislation for regulation, and considering adjustments to taxation criteria, the PPP aims to create a fair and effective system for taxing crypto assets in the country.