Cheong Wa Dae Leans Toward a "Fourth Deferral" of Virtual Asset Tax: Why?

Youth Sentiment and Tax Equity Weigh In

Another Deferral Gains Support Ahead of Next January’s Scheduled Start

Limits on Overseas Transaction Data and Gaps in the System Also a Concern

Ruling and Opposition Parties Introduce Deferral Bills... Decision to Follow Government-Ruling Party Talks

The taxation of virtual assets, scheduled to take effect next January, is increasingly likely to be postponed once again. Cheong Wa Dae is leaning toward granting an additional deferral. This would mark a retreat from the government’s long-standing policy of implementing the tax as scheduled and, if it goes ahead, would be the fourth postponement since the tax system was introduced in 2020.

According to ruling-party sources on October 25, Cheong Wa Dae is leaning toward a deferral, taking into account tax equity between domestic and overseas exchanges and the status of preparations for related systems. Opposition from younger people, who account for a large share of virtual asset investors, also appears to be a concern. Cheong Wa Dae, however, says that “nothing has been decided” regarding its final position, and is expected to reach a conclusion after consultations between the government and the ruling party.

The virtual asset tax is a system that deducts 2.5 million won from annual income earned through the transfer or lending of virtual assets such as Bitcoin, then imposes a 22% tax on the remainder, including local income tax. It was initially scheduled to take effect in 2022, but was postponed three times due to inadequate tax infrastructure and investor protection measures, pushing its effective date to January 1, 2027.

The main reason Cheong Wa Dae is leaning toward another deferral is the difficulty of obtaining overseas transaction data. Under the Organisation for Economic Co-operation and Development’s (OECD) Crypto-Asset Reporting Framework (CARF), cross-border information exchanges are set to begin next year, but the United States, the world’s largest virtual asset market, is not expected to participate until 2029. Critics say this could result in taxation being concentrated on users of domestic exchanges. Establishing tax rules for different types of transactions, allowing losses to be carried forward and deducted, and improving the filing system also remain outstanding tasks.

The government’s stance has also shifted. On October 20, the Ministry of Finance and Economy held a meeting with virtual asset exchanges and experts, chaired by First Vice Minister Kwon Dae-young, to hear views from the field. While emphasizing the principle that “income should be taxed wherever it is earned,” Vice Minister Kwon also said that “tax infrastructure and a market regulatory framework must be established together.” In other words, the focus has shifted from the existing principle of implementing the tax to taking market conditions and the state of institutional preparations into comprehensive consideration.

Legislative efforts to secure a deferral have also begun within the ruling party. Park Min-gyu of the Democratic Party of Korea introduced a bill to amend the Income Tax Act that would effectively delay implementation of the tax until 2029. The People Power Party also supports an additional deferral. Democratic Party leader Kim Min-seok said he would settle the question of whether to impose the tax within the year and announced consultations between the government and the ruling party. With both the ruling and opposition parties agreeing on the need for a deferral, legislation is expected to gain momentum once Cheong Wa Dae finalizes its position.

Political considerations are also difficult to rule out. If the tax takes effect as scheduled, the first income tax filing and payment would be due in May 2028, just after the general election in April that year. For the ruling camp, which is sensitive to concerns about young people building wealth, the potential backlash from pressing ahead with the tax is bound to be a concern.

However, the explanation that preparations remain insufficient despite three previous deferrals could undermine confidence in policymaking. Some also question whether repeated postponements are justified, given that major countries such as the United States and Japan already tax income from virtual assets. The government, ruling party and presidential office are expected to step up consultations after the parliamentary audit and coordinate whether to grant a deferral and when the tax should take effect.

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