The South Korean government has decided to delay the planned 20% crypto tax until 2025. Announced on Thursday, the new crypto tax reform plan reflects concerns over the stagnant crypto market and the time needed to prepare adequate investor protection measures. This decision marks another delay in an already postponed tax schedule.
The tax was originally intended to be implemented on January 1, 2022, and would have imposed a 20% tax on cryptocurrency profits along with a 22% local tax. However, the government has shifted the date to January 2025 due to strong resistance from investors and industries. Some also supported postponement to 2028.
Delayed Tax Plan and Market Condition Concerns
As reported, although some lawmakers proposed further extensions, with some even suggesting commencing the taxation in 2028, the ruling Democratic Party of Korea (DPK) is hell-bent on following through on the taxation as earlier planned. This delay follows a cutback on drafting a law to tax virtual assets and its likelihood of implementation by 2023.
According to the government’s explanation, the unfavorable global environment was responsible for the delay in the tax policy. Other lawmakers also raised concerns regarding the period needed to put in place appropriate measures that will protect the interests of the stakeholders, who are the populace participating in the crypto market.
The sovereign of Korea Yoon Suk-yeol, who has been strongly supportive of tax assessment on crypto currency, has also warned against levying taxes in the current state without appropriate legal guidelines, which might create gaps. He was concerned about levying taxes before the crypto market stabilizes and new laws are put in place that allow for visibility and safety of investors.
During his campaign, President Yoon had promised to abolish the capital gains crypto tax for retail investors. He also pledged to delay taxation on crypto until 2025 and introduced plans for the Digital Asset Basic Act (DABA). This law aims to regulate digital assets and enhance investor protection, with a draft bill expected in 2023.
Global Crypto Tax Challenges and South Korea’s Position
South Korea is not alone in facing challenges with crypto taxation. Thailand faced backlash when it proposed a 15% tax on crypto gains, with retail traders protesting, eventually forcing the government to abandon the policy. Similarly, India’s 30% tax on crypto has led to a dramatic decline in trading volumes, with exchanges seeing drops of over 90%.
Countries like these have struggled with the practicalities of taxing volatile assets like cryptocurrency. South Korea aims to avoid such issues by ensuring a solid legal foundation and effective investor protections before moving forward with its crypto tax policy.
Taxpayers transcending a particular threshold can apply the amended tax plan to ensure effectiveness in the volatile cryptocurrency market. The amended tax plan allows taxpayers to regard a percentage of the sale price as the original purchase price for taxation purposes when evidence of actual acquisition is missing, which is good news for some crypto holders.
It follows indirectly from some public discussions in which industry representatives and the people talked about the ‘unreasonable’ angle of the current tax timing. According to reports, there were discussions of pushing the current tax structure even farther “deep down” to the 2028 petroleum tax; however, the DPK wants to “stick” to the established taxing plan.
For cryptocurrency gains above 2.5 million KRW (about $1,900), the updated crypto tax plan, scheduled to go into force in 2025, will keep the original tax rate of 20% plus an extra 2% local tax. Lawmakers have suggested lifting the tax exemption threshold from 2.5 million KRW to 50 million KRW ($35,900) to ease investor pressure.
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