"Let's Delay Crypto Taxes"... Government Joins Industry and National Assembly in Push for a Delay

With about 70 days to go before crypto taxation is scheduled to take effect on Jan. 1 next year, there are growing expectations that it will be postponed once again. The view is that, amid investor backlash, the government and the ruling party are leaning toward the pragmatic position that taxation should be delayed until institutional shortcomings are addressed, including the lack of access to overseas transaction records and the absence of loss carryforward deductions.

According to relevant government ministries on Oct. 20, the Ministry of Finance and Economy has agreed to attend a forum titled "Urgent Review of the Competitiveness of the Domestic Digital Asset Market and Plans for Institutional Improvement," to be held at the National Assembly on the afternoon of Nov. 2 and hosted by the ruling party. The Income Tax Policy Division under the ministry's Tax and Customs Office will participate as a panelist in a discussion on key issues and policy tasks related to the crypto tax system. A National Assembly official said, "After the government formally announced its commitment to pursue crypto taxation at a National Assembly forum last May, it had declined invitations to attend forums hosted by the Assembly. This will be its first appearance at an official event in about five months."

U.S. to Participate After 2029... Gap in Verification of Overseas Transaction Records

The government has maintained its position that it will issue a National Tax Service notice within this year and implement taxation as scheduled in January next year. However, it changed its stance during the National Assembly audit on Oct. 6, saying it would "gather feedback from stakeholders." The government's shift toward emphasizing public consultation, after maintaining its "taxation as scheduled" stance, is seen as a response to growing investor backlash over issues including the burden of proving acquisition costs, the ban on loss carryforward deductions, the low basic deduction, and concerns about unequal treatment compared with tax-exempt stock gains. Later today, the government will also hold a meeting with the heads of the country's five major crypto exchanges - Upbit, Bithumb, Coinone, Digital X and GOPAX - to hear views from the industry. Kwon Dae-young, First Vice Minister of Finance and Economy, and Yoo Young-joon, Director General for Digital Finance Policy at the Financial Services Commission, will attend.

Industry officials are expected to raise concerns about potential initial confusion, noting that the project to build an integrated crypto analysis system was commissioned in March. One of the key issues is how users of overseas exchanges can prove their acquisition costs. In principle, investors themselves are responsible for proving acquisition costs. But for overseas transactions, records may be retained for only a few months, making it difficult to determine acquisition costs with certainty. The Crypto-Asset Reporting Framework (CARF) agreement, intended to address this gap, takes effect next year, but the United States, the largest market, will not participate until after 2029.

Yonhap News Agency

No Loss Carryforwards Allowed... Debate Over Unequal Treatment Compared With Tax-Exempt Stock Gains

The treatment of losses is also a problem. Crypto assets such as coins are more volatile than stocks. If an investor loses KRW 40 million in the first year and earns KRW 50 million the following year, the actual profit is KRW 10 million. Under the current system, however, the loss from the first year cannot be taken into account, so the investor would have to pay tax based on KRW 47.5 million - KRW 50 million minus the KRW 2.5 million basic deduction. This is because the system allows gains and losses from the same year to be offset but entirely prohibits loss carryforwards, preventing remaining losses from being carried over to the following year. By contrast, major countries such as the United States and the United Kingdom allow investment losses to be carried forward and deducted from future capital gains. Japan is also planning to allow crypto investment losses to be carried forward for three years starting in 2028.  The tax exemption for stock gains following the scrapping of the financial investment income tax, along with the low basic deduction limit of KRW 2.5 million, is also fueling resistance to taxation.

People in Their 20s and 30s Make Up Half... General Election Just Before First Tax Filing Adds to Political Pressure

Crypto taxation has been postponed three times since it was introduced in 2020. If implementation in January next year is finalized, the first tax filing and payment will take place in May 2028. The general election is scheduled for April that year. With the first filing season falling just after the election, tax resistance and the resulting political pressure have strengthened the case for the government and ruling party to delay implementation once again. As of the end of June, South Korea had about 11.17 million crypto investors, based on the Financial Supervisory Service's estimate of users eligible to trade, and young people in their 20s and 30s accounted for about half (44.1%). The domestic crypto market's capitalization ahead of taxation stands at KRW 58.9 trillion, down about 32% from KRW 87.2 trillion a year earlier. With trading already contracting, complaints could grow over the added tax burden.

There are already indications that the government and ruling party are shifting toward postponing taxation. Min Byung-deok, senior vice chair of the Democratic Party of Korea's Policy Committee, wrote on Facebook last September, "I agree with the principle that income should be taxed, but we must first establish a basis for collecting taxes fairly." He proposed delaying taxation until after the Digital Asset Basic Act is passed. 

This content was produced with the assistance of AI translation services.