South Korea delays 20% crypto tax & starting to set clear guidelines.
The delay came just a few months after the newly elected president named Yoon Suk-yeol promised on working first on regulations. The government of South Korea reportedly postponed the 20 percent tax on crypto gains by two years. This controversial 20 percent tax on cryptocurrency gains was about to come into impact on 1st January next year. But it got postponed till 2025.
The government officials declared their plans for new tax reform deferring the policy of crypto tax to 2025. They cited stagnant market conditions and the time needed for the investment protection measure’s preparation. The initial plans to impose an extra 20 percent on cryptocurrency gains exceeding 2.5 million won in a 1 year period stayed unchanged. The controversial 20 percent cryptocurrency tax now got delayed for the second time as it was first declared last year in January. At first, the tax was supposed to get introduced by this year January. Yet lawmakers in this country deferred it to next year. Thus it got delayed by two more years.
The chairman of the Tax Subcommittee, Kim Young-jin is one of the lawmakers who opposed the policy of crypto tax and called for strong crypto regulation formulation first. With one newly elected pro-cryptocurrency president in Korea, the country has hopes of regulating the cryptocurrency market initially and then implementing tax rules. Cryptocurrency tax lead the agenda of the government as the cryptocurrency market reached new highs in the last couple of years. Similar to the proposal of South Korea’s 20 percent tax, Thailand declared a 15 percent cryptocurrency gains tax. Yet it got huge backlash from different retail trades. Eventually, the government scrapped the tax policy.
India put a 30 percent tax on cryptocurrency beginning from 1st April. Yet the huge taxation wreaked havoc on cryptocurrency exchanges in India. This was because volumes of trading plunged more than 90 percent within a few weeks of the new tax laws’ introduction. A report that got leaked in May 2022 suggested that this newly elected president has been working for introducing the Digital Asser Basic Act by early 2023. These regulations will stay focused on NFTs and initial coin offerings. It will expand infrastructure and support research on central bank digital currency.
Authorities of South Korea decided to postpone taxation of asset class till 2025. It was as per an official declaration. This 20 percent capital gains tax on crypto was expected to start its action in 2023’s start. It offered some reasons for the delay. The plan of tax had been delayed already before. This 20 percent tax will apply to cryptocurrency gain exceeding $1900 in a period of one year. Few enthusiasts of the market feel aggrieved regarding such a rule because they feel that taxing gains more than $1900 is very strict. Smaller crypto investors particularly will get hurt by such a particular threshold.
The reason behind pushing back this taxation was that the conditions of the market have been stagnant. Some time was needed for implementing measures of investor protection. Kim Young-jin, the chairman of the Tax Subcommittee mentioned that wider crypto regulation generally was essential before you go ahead with taxation. The focus of Korea on cryptocurrency tax was a subject of discussion last year. It has been since the time the country first delayed cryptocurrency tax to next year. The decision of taxing this asset class was met with few criticisms though there has been some relief that NFTs would get executed from taxation. As with cryptocurrency regulation, South Korea’s financial regulator was ramping up all efforts considerably. Recently the authority started to probe foreign exchange transactions at some commercial banks for the illegal use of crypto. It Terra investigation also often has been making some headlines.
South Korea’s Financial Services Commission (FSC) reported 16 foreign crypto exchanges to investigative agencies for violating the Specific Financial Information Act, news1 reported on August 18. According to the report, the law prevents unregistered crypto exchanges from operating without a license, but the 16 firms have been providing crypto services for Koreans and hosting events targeting Koreans.
The affected exchanges include MEXC, KuCoin, CoinW, CoinEX, ZB.com, Bitglobal, Bitrue, Poloniex, BTCEX, Phemex, XT.com, Pionex, BTCC, DigiFinex, AAX, and ZoomEX. The report revealed that the infraction was discovered by the Financial Information Analysis Institute arm of the FSC. The regulators had informed the firms about their obligation to report their operations, but they failed to comply.
The FSC wants to block these exchanges’ continued operation within its jurisdiction with KuCoin, Poloniex especially. It has asked the Broadcast and Communications Commission and the Korea Communications Commission to block domestic access to their websites. Meanwhile, the regulator wants to bar credit card companies from rendering their services to these firms.
Officials described the exchanges as ill-equipped because they do not have the Information Security Management System (ISMS) certificate, which means their users risk having their personal information leaked. Apart from that, the officials added that malicious actors could also use the exchanges to launder money.Under the Act, an individual operating an unregistered and illegal exchange could be imprisoned for up to 5 years or fined 50 million won ($37,900). The operator will also be unable to register as a domestic virtual asset operator for five years. The law applies to both foreign and local exchanges operating within the country.
South Korea has one of the most comprehensive legal frameworks for the crypto industry. In 2021, the authorities mandated crypto firms to get the ISMS certification, leading to the exit of several crypto exchanges from the country. However, 35 virtual assets providers could register locally –five of those exchanges, UpBit, Coinone, Gopax, Korbit, and Bithumb, are responsible for over 99% of the crypto transactions in the country. Meanwhile, the recent collapse of the Terra ecosystem has led to increased emphasis on crypto regulation in the country.
Continuing to follow South Korea as they navigate the cryptocurrency and blockchain space helping to set a precedence for the rest of the world.
