Beginning January 1, 2022, any virtual asset gain in excess of 2.5 million Korean won (approximately $2,104) will be taxed at a rate of 20%. Despite the fact that the deadline is approaching, regulators and investors remain at odds. As South Korea’s finance minister refuses to make any changes to the original tax plan, anonymous investors have petitioned the presidential Blue House online.
The Blue House National Petition Bulletin is an online petition system that allows citizens to anonymously bring to light pressing issues that may otherwise go unnoticed. More than 200,000 signatures on any topic collected within 30 days obligates the government to provide a public response. In April, one petitioner called for former Financial Services Commissioner Eun Sung-voluntary soo’s resignation after he made disparaging remarks about virtual asset investors.
There are currently two open online petitions on crypto income taxation, one of which has gathered over 19,000 signatures in four days. The petitioner asks for two things: an extension of the grace period before crypto gains are taxed, and fair taxation. One criticism leveled at the tax plan is that it begins taxation too soon, especially since the government has yet to prepare adequate safeguards for crypto investors.
Another issue is that cryptocurrency investors are taxed differently than stock capital gains. Over 2.5 million won, income from virtual assets is taxed, whereas stock capital gains taxes begin at 50 million won (approximately US$42,140). Furthermore, stock capital gains will be taxed beginning in 2023, a year later than crypto taxation. The government stated that it provides special tax benefits to income from certain financial investments, and virtual assets are not classified as financial assets in South Korea, thus the lower tax deduction threshold.
“As there is income from virtual asset investments, taxing should take place as soon as possible,” said Hong Ki-yong, professor at Incheon National University. He opposes the group calling for a one- or two-year delay in taxing cryptocurrency. However, cryptocurrency gains and stock capital gains may be lumped together. “According to international financial reporting standards, virtual assets are classified as ‘other income.’ However, there is little to no intrinsic difference between income generated by virtual and financial assets. As a result, the subject of tax deductions and other benefits may be discussed in the future,” Hong explained.
Meanwhile, some experts point out another flaw in the taxation of cryptocurrency income: gains from peer-to-peer (P2P) transactions are nearly impossible to track down unless the parties involved voluntarily disclose their earnings.
Despite the lack of measures to tax P2P transactions, finance minister Hong Nam-ki stated Tuesday at the National Assembly’s annual review that “the ministry will reinforce the tax infrastructure to prevent tax evasion,” adding that the ministry will also “supplement the regulations on forcible collection for assets concealed as virtual assets.”