South Korea has proposed imposing taxes on digital currency income starting 2021. The taxation will also apply to digital currency processing operations and profits from initial coin offerings.
South Korea’s Ministry of Economy and Finance proposed the amendments to the existing taxation laws to include the digital currency industry. As per a report by local newspaper E Daily, the Ministry will announce the proposed amendments in July and submit them to the national assembly in September. If the national assembly approves the amendments, they will be implemented starting 2021.
The amendments, which are also supported by the Ministry of Information and Technology, will see South Korea tax income generated from the sale of digital currencies. Transactions between digital currencies will not be subjected to these taxes, however.
“We are looking at ways to tax if profits are made through transactions, mining, and public offerings (ICOs) in accordance with the principle of ‘tax where income is located,” an official at the Ministry of Information and Technology stated.
The official clarified that loss-making transactions will not be subjected to the taxes, just like in securities laws.
Even if the national assembly passes the laws, some experts believe that it will still be very difficult to enforce them. One of them is Seung Seung-young, a researcher with the Korea Regional Tax Institute. He told E Daily that there are still some loopholes that digital currency traders can exploit.
He stated, “If you do business through a peer-to-peer (P2P) transaction without going through an exchange, there is a possibility of avoiding taxation. Even with IP tracking, if there are a large number of targets, administrative costs will increase and it will be difficult to track each day.”
Kim Yong-min, an official with the Korea Blockchain Association, believes it will take three to four years before the government can get a grasp of the digital currency industry.
This is the latest attempt by the East Asian country to tax the digital currency industry. In January , the Ministry of Economy and Finance proposed a 20% tax on digital currency gains. The ministry proposed that the country categorize digital currency gains as other income. This is a category that comprises of income that’s unusual and infrequent.
South Korea’s efforts to tax the industry have also seen it engage in a legal battle with one of its largest digital currency exchanges Bithumb. The exchange went to court earlier this year to protest a $69 million tax bill imposed by the National Tax Service.
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