Sentiment inside the South Korean government is shifting toward delaying a tax on cryptocurrency gains set to take effect in January, as resistance to the levy grows. The crypto market slump has dragged on, and the current tax framework was drawn up six years ago and needs revision.
"Nothing has been decided on crypto taxation, and we need to see how the discussion unfolds in the tax subcommittee," a senior government official said on the 21st. "But there is a burdensome aspect in that it affects as many as 11 million investors."
The crypto market has indeed been weak this year. According to the Financial Supervisory Service, average daily trading value of cryptocurrencies in South Korea stood at about 3.1 trillion won in the first half of this year, down 51.5% from the same period a year earlier. Officials inside and outside the government say a backlash from investors would be inevitable if the tax were imposed without any provision for carrying losses forward.
Kwon Dae-young, first vice minister of the Ministry of Finance and Economy, had earlier stressed the principle of taxation while also noting the need for a delay. "For the taxation principle to take root properly in the market, tax infrastructure and market discipline systems must be in place as well," he said.
The remarks are read as meaning that taxation can proceed only once sufficient tax infrastructure and a regulatory framework are established. The United States is set to join the Crypto-Asset Reporting Framework (CARF), a system for the automatic exchange of cryptocurrency transaction information, in 2029. A basic act on digital assets has yet to be enacted. Taken together, these circumstances suggest the finance ministry is leaning toward a delay. An industry official familiar with the ministry's thinking said, "Japan treats crypto as other income, and there has recently been talk there of allowing losses to be carried forward." The official added, "Korea also classifies it as other income, so the whole framework needs to be reexamined."
The government is also said to be uneasy about the prospect of a large-scale investor backlash over the crypto tax. With individual investors' losses mounting amid the recent stock market decline and complaints rising over tougher property taxes, levying a tax on cryptocurrency as well could deepen discontent. Low approval ratings for the government and the ruling party are also cited as a reason officials cannot help being sensitive to investor reaction. According to financial authorities, the number of accounts in South Korea able to trade cryptocurrency reached 11.175 million as of the end of June this year. An industry official who attended a meeting at the finance ministry said, "The mood was broadly positive toward a delay," adding, "I got the impression the government also feels considerable pressure about going ahead with the tax as scheduled."
Calls for a delay are also growing in the political arena. Rep. Park Soo-young of the People Power Party held a press conference at the National Assembly on the same day along with cryptocurrency investors, arguing that the start of taxation should be pushed back two years to January 2029. "We must not kick away the ladder that lets young people build assets," Park said. "Since the Democratic Party has not yet adopted a delay as its official position, we will try to open talks between the floor managers of the two parties."
A bill for a delay has already been introduced on the ruling party side as well. Rep. Park Min-kyu of the Democratic Party on the 16th introduced an amendment to the Income Tax Act that would push the start of taxation to 2029. Twelve Democratic Party lawmakers and one lawmaker from the Rebuilding Korea Party joined as co-sponsors.