Government to tax cryptocurrency transactionsThe government is expected to start taxing transactions on cryptocurrencies like bitcoin and ethereum.
The Ministry of Economy and Finance said Sunday that it has decided to start coming up with ways to tax cryptocurrency transactions next year following criticism that people making profit from such transactions were essentially free from taxation.
The idea of putting cryptocurrency within legislative boundaries is not new, as lawmakers have been discussing ways to fix Korea’s securities regulations to include cryptocurrencies. The possible regulatory fix is awaiting approval, after which it would come into effect next year.
“We are moving separately from what’s going on at the National Assembly,” a ministry spokesperson said. “We are following the basic principle that taxation must occur in places where profits are made.”
The United States, Japan and Australia are among the countries that have already started taxing cryptocurrency transactions, with others looking to follow suit after the recent meeting of the financial authorities of Group of 20 member countries.
The government is looking to amend statutes on income tax to start taxing virtual assets while finding the precise taxing classification for them. While the proposed regulatory fix being discussed in the National Assembly has classified cryptocurrency as virtual assets, there is an argument that cryptocurrency should be classified as a currency rather than an asset.
The ministry is also contemplating whether gains from cryptocurrency transactions should be considered capital gains or other incomes. If considered capital gain, the process of taxing gains from cryptocurrency transactions would entail acquiring all transaction history from each cryptocurrency exchange.
The method would also be a challenge as the exchange rate differs by exchange.
One solution could be classifying cryptocurrency gains as other income like lottery prizes, manuscript fees and gratuity. Then the government would levy taxes once a year on cryptocurrency transaction gains including interest, dividends, business income, employment income and pension benefits.
“This is in line with the direction of applying taxes according to income levels,” said Sung Tae-yoon, an economics professor at Yonsei University. “A long-term perspective is needed to tackle a different set of problems at once.”
BY SOHN HAE-YONG [firstname.lastname@example.org]