The South Korean government has postponed imposing tax on gains from cryptocurrency investments by two years, according to the economic policy outline announced on Thursday.
A 20% tax on crypto asset gains was scheduled to kick in on January 1, 2023, but South Korea’s president-elect Yoon Suk-yeol promised to delay the planned taxation on digital assets gains, citing a lack of the taxation system and measures to protect investors.
Suk-yeol said it will be inconsistent to impose taxes without a clear basis on how to legally define cryptocurrencies in the country’s system. As such, it would be better to postpone the tax until the crypto market had matured and new legislation was readied thoroughly to ensure transparency and investor protection.
Choo Kyung-ho, the yet-to-be-confirmed nominee for deputy prime minister and finance minister, also said taxation from 2025 would be more reasonable after clearly establishing the legal definition of cryptocurrency assets.
During the election campaigning, Suk-yeol promised to abolish the capital gain tax to support retail investors, and also said taxation on cryptocurrencies should be put off by two years. His stance on the matter came as politicians from both camps were striving to appeal to millennial and Generation Z voters ahead of the presidential election.
In December, representatives from the Tax Subcommittee in the National Assembly agreed to postpone the crypto tax by one year. A 20% tax on gains made through cryptocurrency trading – if the total income is more than 2.5 million Korean won (about $2,000) – was originally set to come into effect in January. But after the amendment passed a parliamentary vote, the new taxation rules would come into play on January 1, 2023.
Investors in 20s and 30s oppose crypto tax
Although no specific taxation standards for crypto assets have been put in place yet, the finance ministry considers re-classifying returns made on cryptocurrencies as a type of ‘other income’. This places crypto profits in the same category as those earned from lotteries, which has a 20 percent tax rate.
Despite the high tax tag levied on ‘other income’, it remains better than being taxed as a form of capital gains as it is currently treated, which calls rates of up to 42 percent.
Historically, South Korea is one of the hottest investing and trading markets for cryptocurrencies. However, authorities have been hesitant to regulate the virtual asset class, due to their belief that cryptocurrency regulation could lend legitimacy to the sector.
Separately, the central bank is taking a ‘wait-and-see’ approach over the issue of a government-controlled cryptocurrency, or a so-called central bank digital currency (CBDC), as of now.