Earlier this year, the South Korean government announced the 20% tax on digital currency transactions which is intended to start in 2022.
They also announced that at the start of the 2022 tax year, stock and bond investors will be taxed on capital gains that are over $45,000 or KRW50 million. Non-sales transfers of digital currency asset ownership will also be subject to “statutory gift and inheritance tax rates” of up to 50%.
The new regulations state that gains from digital currency transactions are to be classified as “miscellaneous income.” Also, when investors are filing income taxes in May 2023, they must report virtual asset gains.
Investors’ response
The new tax law has stirred up some controversies, particularly since investors have strongly disagreed with the government and accused officials of insufficient protective measures for digital currency investors.
Some digital currency investors believe this new tax law is unfair because income from digital currency over the amount of KRW2.5 million, around US$2,105, will be taxed while the stock capital gains taxes starts at KRW50 million, about US$42,600. Additionally, the stock capital gain tax will be implemented in 2023, a year after the digital currency taxation.
A petition was also posted on the Cheong Wa Dae public petition bulletin board, stating that the taxation of digital currency assets should be postponed. As of October 14, 25,000 have signed the petition.
The lawmaker’s proposal
Some lawmakers of the National Assembly proposed that the new digital currency taxation should be delayed until the industry is mature enough. But the Finance Minister, Hong Nam-ki strongly opposed the lawmakers.
Hong Nam-ki, in his statement, insisted that the amended tax law which states that 20% of the digital currency income or over the amount of 2.5 million won (about US$2,132) should be taxed from January 1st, 2022, should remain.
Hong Nam-ki also added: “The virtual asset market has grown to be as big as the KOSPI (Korea’s stock market). It would be a problem for fair taxation if we do not tax where there is income.”
He also said, “a further delay would only cause market confusion.”
The effects of the digital currency tax law on the election
The plans of the presidential candidates on taxation of virtual assets like digital currency is now an important variable that will influence the votes in the election next year. It seems the leading presidential candidates from both the opposition and ruling parties are of the opinion that the taxation law should not be implemented yet.
This may be due to the fact that the young citizens, in their 20s and 30s, have a high proportion of investment in virtual assets and have rapidly emerged as a major factor that will change the course of next year’s presidential election.
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