Key Takeaways
- If the proposal is approved, the taxation of crypto gains will be pushed back by three years, from the beginning of 2025 to 2028.
- Bill arguing that imposing an income tax on an asset with higher risks than stocks could lead to investors leaving the market
South Korea’s ruling People’s Power Party has officially proposed delaying the implementation of the country’s tax on cryptocurrency trading profits. If the proposal is approved, the taxation of crypto gains will be pushed back by three years, from the beginning of 2025 to 2028.
The bill, proposed last Friday, argues that imposing an income tax on an asset with higher risks than stocks could lead to investors leaving the market. The bill’s description on the South Korean National Assembly’s website stated: “As at the moment, the investor sentiment for crypto is negative, most investors are expected to leave the market if the country imposes an income tax on an asset that has higher risks than stocks.”
Initially, a 20% taxation on crypto gains was set to take effect on January 1, 2022. However, due to heavy backlash from investors and industry experts, the implementation has been postponed twice, currently set for January 1, 2025. The People’s Power Party, led by President Yoon Suk-yeol, had pledged during the last general election to push back the crypto gains tax.
Local news reports indicate that the country’s Ministry of Economy and Finance has not yet made a decision on additional delays. The ministry is expected to announce new amendments to the tax code at the end of this month.
South Korea hosts one of the world’s largest and most active cryptocurrency markets. According to the Financial Services Commission, around 6.5 million citizens, or 12.5% of the population, used crypto by the end of last year. Kaiko data showed that the Korean won was the most-used fiat currency for crypto trading over the U.S. dollar in the first quarter of 2024.
The bill’s description emphasized that rapidly imposing taxes on virtual assets is “not advisable at this time.” It argued that with crypto having higher risks than stocks, investors are likely to leave the market if income tax is imposed.
Before the South Korean general elections in April, the People’s Power Party had promised to delay the implementation of the crypto gains tax by two years as part of its campaign. In February, the party argued that the country must establish a general crypto framework before diving into taxation, underscoring that taxing crypto should only happen once the base framework is fully established.
The plan to tax crypto gains in South Korea was initially scheduled to be implemented in 2021. However, due to backlash from crypto industry leaders and stakeholders, the government postponed the implementation to 2023, and then again to January 1, 2025, citing concerns over investor interests. If the new proposal passes, the implementation will be delayed by almost seven years since its original schedule.
In March of last year, the South Korean National Assembly passed the Virtual Asset User Protection Act (VAUPA), establishing a legal framework for regulating digital assets. The Financial Services Commission (FSC) officially enacted VAUPA in February 2024, with the law set to take effect on July 19, 2024.
This new legislation represents a significant advancement in regulating South Korea’s cryptocurrency market, aiming to curb market crimes and enhance transparency by prohibiting the use of undisclosed significant information in cryptocurrency transactions and activities related to market manipulation and illegal trading.
