The government is leaning toward another delay in taxing cryptocurrency gains, a levy set to take effect in January, according to people familiar with the matter. The shift comes as criticism mounts that the tax framework, drawn up in 2020, fails to reflect a rapidly changed market at a time when the slump in digital assets has dragged on. Officials are also concerned that imposing taxes before tax infrastructure and investor protection systems are fully in place could trigger a large-scale backlash from investors.
A senior government official said on the 21st that the position on crypto taxation has not been finalized and that the government must watch discussions in the National Assembly's tax subcommittee. "But it is true that there is a burden, given that this is an issue affecting as many as 11 million investors," the official said.
The recent weakness in the crypto market is adding to the strain. Average daily trading volume on domestic crypto exchanges was about 3.1 trillion won ($2.2 billion) in the first half of this year, down 51.5% from a year earlier, according to the Financial Supervisory Service. With trading having contracted sharply and no provision allowing investors to carry losses forward against the following year's income, calls are growing to revise the current tax rules.
The government is holding to its existing taxation principle while stressing the need for institutional groundwork. Kwon Dae-young, first vice minister of the Ministry of Finance and Economy, told a meeting with crypto industry officials and experts on the 20th that for the taxation principle to take root properly in the market, tax infrastructure and market discipline systems must be in place alongside it.
The industry reads that as setting two conditions ahead of implementation: tax infrastructure capable of obtaining transaction data on users of overseas exchanges, and a market discipline framework established through a basic digital asset act. U.S. participation in the Crypto-Asset Reporting Framework (CARF), an automatic exchange system for crypto transaction data, is scheduled for 2029, and Korea's own basic digital asset act has yet to clear the National Assembly.
Some argue the tax framework itself should be reconsidered. An industry official familiar with the finance ministry's thinking said Japan classifies cryptocurrency as other income but is now discussing the introduction of loss carryforwards. "Since Korea also treats crypto gains as other income, we need to look again at whether the current tax structure is appropriate," the official said.
Another concern for the government is the possibility of collective resistance from investors. Losses among retail investors have swelled amid a weak stock market, and discontent has grown over tighter property taxes. If crypto taxation is added on top, officials worry the backlash could spread across financial markets. The low approval ratings of the government and the ruling party are also cited as a burden. A survey by financial regulators found 11.175 million accounts eligible for crypto trading in Korea as of the end of June, though the figure includes duplicate accounts opened at multiple exchanges.
Participants said they sensed a change in the government's stance. An industry official who attended the finance ministry meeting on the 20th said the overall mood was favorable to a tax delay. "The government also appeared to feel considerable pressure about going ahead with the January start as scheduled," the official said.
Efforts to push back the start date are also gathering in the National Assembly. Rep. Park Soo-young of the People Power Party held a news conference at the National Assembly on the 21st with crypto investors, urging a two-year delay to January 2029. "We must not kick away the ladder young people use to build assets," Park said, adding that the party would seek talks between the rival parties' committee liaisons on postponing the tax.
Legislation is also moving within the ruling party. Rep. Park Min-kyu of the Democratic Party of Korea introduced a bill on the 16th to amend the Income Tax Act and push the start of crypto taxation to 2029. Twelve Democratic Party lawmakers and one from the Rebuilding Korea Party signed on as co-sponsors.