"Taxing income where it arises is only natural. But imposing a tax before a framework act on digital assets has even been enacted puts the cart before the horse."
Hwang Seok-jin, a professor at Dongguk University's International Graduate School of Information Security, made the remarks in an interview with Seoul Economic Daily on the 18th, referring to the taxation of cryptocurrency set to take effect in January next year. Hwang does not dispute the need for taxation itself, but argues it is premature to levy taxes before legal standards are in place for the wide range of transaction types now in use.
Hwang stressed that the tax authorities' technical readiness must be distinguished from their institutional readiness. "The National Tax Service has largely completed the technical preparations needed to trace cryptocurrency transactions," the professor said, adding that "tracing transaction records and accurately calculating the income actually subject to tax are separate problems." Even if the movement of assets through overseas exchanges and private wallets can be traced, limits remain in calculating each investor's acquisition price and gains or losses and in determining what is taxable.
Hwang pointed in particular to the fact that the current tax framework focuses on the transfer and lending of cryptocurrency. Transaction methods in the crypto market are diversifying rapidly through staking, decentralized finance (DeFi) and stablecoin payments, the professor said, but detailed tax standards covering them have not been sufficiently established.
"We first need to settle whether staking rewards are taxed at the point the coins are received or later when they are disposed of," Hwang said. "Taxing assets that have not been converted into cash can also raise questions about a taxpayer's actual ability to pay."
Stablecoin payments were also singled out as an area where tax standards need to be put in order. If someone exchanges bitcoin for a dollar-pegged stablecoin and then uses it to buy goods, for example, the question is how to distinguish and tax the income arising at each stage of the transaction.
"This is not a call to postpone taxation unconditionally, but to first build a system under which taxpayers can pay tax accurately and fairly on their actual income," Hwang said. "The reasonable course is to enact a framework act on digital assets first, establish a legal foundation for the industry, and then put the tax framework in order."