Behind the government's decision to effectively shelve cryptocurrency taxation, originally set to take effect next year, lies President Lee Jae-myung's falling approval rating. Officials judged that pushing through taxation on cryptocurrency — an asset class held largely by younger investors — could trigger a serious backlash that would carry into the 2028 general election. The government has also softened its stance on a production tax credit for electric vehicles, which it had excluded from this year's tax code revision, saying it "can be reviewed." The aim is to reflect parliamentary discussions more fully in the tax code. With the ruling and opposition parties recently calling for an overhaul of long-frozen income tax brackets and deduction thresholds, analysts expect the government's tax reform package to be substantially revised during the National Assembly's review in November.
At a comprehensive parliamentary audit of the Ministry of Finance and Economy held at the National Assembly on the 22nd, lawmakers from both parties said the infrastructure for taxing cryptocurrency was not sufficiently in place and called for the rollout to be reconsidered. Lee Hyoung-il, deputy prime minister and minister of finance and economy, said the ministry would listen further to experts and the industry, gather all views raised in the National Assembly and give the matter the fullest possible consideration before deciding. That marks a retreat from the earlier position that taxation would proceed as scheduled without a grace period. The ministry had planned to finalize the related public notice by the end of this month to move ahead with taxing virtual assets, but a delay is now unavoidable.
Under current law, taxation on income from the transfer and lending of cryptocurrency takes effect in January next year. A 22% rate, including local income tax, applies to annual income after a basic deduction of 2.5 million won. But with the government withholding judgment and the National Assembly continuing to debate a delay or repeal, the chances of a change to the timetable have grown.
Expanding eligibility for the EV production tax credit is another point of contention. In this year's tax reform package, the government introduced tax credits tied to domestic production in six sectors, including semiconductors and secondary batteries, but excluded finished electric vehicles from the support. The auto industry has repeatedly argued that existing support centered on facility investment is not enough to encourage expanded domestic production, but the ministry rejected the calls, saying blanket benefits are difficult to apply to electric vehicles, which contain tens of thousands of parts. After the deputy prime minister recently said he would hear out the industry, however, room has opened for the scope of support to be widened during parliamentary deliberations. Lee is considering visiting Hyundai Motor and other companies on the 4th of next month to hear from them directly.
Unlike the crypto tax or the EV credit, adjusting income tax brackets is an issue on which the ruling and opposition parties have found common ground on the need for change. Even when prices and nominal wages rise, unchanged brackets mean taxpayers whose real income has not increased can face a higher rate or a heavier tax burden. The 88 million won threshold dividing the 24% and 35% income tax rates has not changed since 2008, and critics have repeatedly noted that the brackets have stayed fixed for years even as prices and wage levels shifted. Tied to the same debate is a proposal to index brackets to inflation so they adjust automatically. The Democratic Party of Korea has introduced a resolution urging that long-frozen tax and deduction thresholds be updated and that indexation be phased in.
The government is cautious. It argues that it is already responding to inflation through various income and tax deductions, and that with a high share of taxpayers paying no tax, adjusting brackets is a medium- to long-term task that must be weighed together with a reorganization of the deduction system. Raising brackets across the board would lighten the burden for some taxpayers but could also reduce revenue, meaning fiscal conditions must be factored in as well.
Other issues expected to be debated in the National Assembly include expanding the spousal inheritance deduction, currently 500 million won, and the comprehensive real estate holding tax deduction threshold for owners of a single home who do not live in it. The government initially sought to lower the basic deduction for such owners from 1.2 billion won to 900 million won, but after persistent objections it submitted a revised bill to the National Assembly keeping the current 1.2 billion won. In effect, the plan to vary tax burdens according to whether owners live in their homes has already retreated once. Still, the prevailing view is that the chances of further easing of property tax law are low for now. A senior government official said regulations on non-occupancy under the comprehensive real estate holding tax and the capital gains tax are linked to the government's current philosophy on housing, and so should be seen as leaving little room to waver.
Experts said the consistency and predictability of policy are being damaged as the government's tax policy shifts with the political situation. Kim Woo-chul, a professor of taxation at the University of Seoul, said scheduled taxes are repeatedly being withdrawn or postponed as situational logic and political judgment take precedence. Because tax law is pushed through without sufficient social consensus or prior review, he said, instability grows and predictability disappears.
Moon Sung-hoon, a professor of business administration at Hallym University, said what the government argued when it was in opposition differs too greatly from the policies it is now pursuing. He added that no clear principles or road map are visible for how income from financial investments as a whole will be taxed.