Lower taxes should give P2P market a boost

Korea’s peer-to-peer (P2P) lending market is likely to get a boost from a government decision to lower the tax rate on interest income from such loans temporarily, industry sources said Tuesday.

Announcing its revised tax code for this year, the finance ministry said Monday that the income tax rate on P2P loans will be reduced to 14 percent from the current 25 percent for two years starting in 2019.

P2P lending refers to a new type of loan extension to individuals or businesses through social network services and the Internet, and covers a wide range of services, including loans to startups and self-employed businessmen.

Market watchers expected the government move to give a fillip to the P2P industry by boosting investor profit and attracting more lenders to the sector.

“Industry people hail the introduction of a proper tax rate, which puts P2P lending on par with other investment vehicles in terms of taxation,” an informed source said. “The lower tax rate will likely be of great help to invigorate the market.”

Yet the move is also feared to make consumers more vulnerable to abusive and deceptive P2P lending practices.

Apparently with that in mind, the government said the lower tax rate will apply to only “qualified” P2P lending companies that meet a set of requirements.

Currently, 157 P2P companies are registered with the country’s financial regulator, which is widely expected to adopt stricter registration requirements down the road.

An industry source said the financial watchdog may revise a set of guidelines for P2P lenders, or a related law will likely be enacted within this year.

P2P lending firms are largely unregulated in Korea. With two bills to regulate the P2P lending market pending in the National Assembly, financial authorities have been struggling to tackle related irregularities.

Yonhap