South Koreans may soon see their cryptocurrency proceeds slashed by the tax man.Earlier this week, South Korean officials in the Ministry of Strategy and Finance proposed taxing profits made through crypto-fiat transactions, including tokens sold by mining firms through ICO offerings.
The regulator anticipates to submit the complete proposal in July and hand in the tax amendment to the South Korean regular assembly in September, according to a report by a local media outlet by the name Edaily. South Korea has long attempted to settle on a regulatory framework for cryptocurrencies. The proposed amendments could bring much needed clarity in the country’s cryptocurrency industry.
Currently, the South Korean law does not tax the revenue generated from cryptocurrency transactions, unlike the likes of the US, Japan, Germany, and many others who tax profits obtained from cryptocurrency dealings. Moreover, Singapore also exercises a Value added tax (VAT) on digital currency transactions, however, the South Korean officials made it clear they do not intend to go that far.
South Korean officials to tax revenue generated from crypto transactions
The South Korean lawmakers are now looking to invoke the usual ‘taxation where income is located’ rule to cryptocurrency transactions that make a profit. Furthermore, the tax will not apply if the transaction results in a net loss, but will equally tax both South Korean citizens and foreign residents.
Following G20’s recommendations, digital currencies are expected to be classified as assets as opposed to currencies. Nevertheless, not everyone is not okay with the proposed changes and the ability to effectively enforce taxation. According to a researcher at the Korea Local Tax Institute, Young Jeong:
“If you do a P2P transaction without going through an exchange, there is a possibility of avoiding taxation. Even with IP tracking, if there are a large number of targets, administrative costs will increase and it will be difficult to track each day.”
Furthermore, South Korean lawmakers are also suggesting to ban the country’s residents from using decentralized finance (DeFi) products, labeling digital currencies as high-risk assets.