Stop deferring the taxation on crypto assets

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Stop deferring the taxation on crypto assets

Published: 25 Nov. 2024, 20:03 Updated: 26 Nov. 2024, 09:35

Audio report: written by reporters, read by AI

The question of taxing crypto assets has been tabled at the taxation subcommittee of the National Assembly’s Finance and Economy Committee. The inclusion of crypto taxation in the Income Tax Act was provided in 2020 and goes into effect in 2025 after two deferments. The government and ruling party propose another two-year grace period to 2027. The opposition Democratic Party (DP) wants to carry it on as planned after upping the annual tax exemption threshold to 50 million won ($35,574) from the original 2.5 million won.

However, in an internal meeting, DP head Lee Jae-myung reportedly questioned the feasibility of the taxation, citing the complexity of identifying overseas crypto assets. The taxation may end up in the trash can like the financial income tax. The legislature reached a bipartisan decision to upend a separate income tax on financial investments in fear of capital flight in the stock market already rapidly losing investors.

But the crypto market is a different matter. Digital coins drew frenzied investment after crypto-friendly former U.S. president Donald Trump got re-elected. The bellwether Bitcoin has neared $100,000. In a KBS TV interview, Financial Services Commission (FSC) Chairman Kim Byoung-hwan spoke on the need of “close supervision” on unfair movements in the crypto market due to a sudden jump in the prices and heavy volatility. Trade turnover in the virtual coin market has exceeded that of the stock bourse.

Unlike listed stocks, digital coins do not have underlying assets. Kim questioned “the positive impact” of crypto assets as opposed to the stock market that has a positive role in the economy. He said capital should flow into the stock market over crypto. Another deferment in the taxation can add fuel to the speculative market.

Those calling for the deferral point to the difficulties of identifying the capital gains from crypto holdings. People Power Party chief Han Dong-hoon questioned the readiness in “fair and equal” taxation on crypto assets. Some say taxation should come in 2027 when an international framework to automatically exchange information on crypto assets goes into effect. But despite the challenges to track offshore holdings, the United States, United Kingdom and Japan levy taxes on income from crypto investments.

The National Assembly Budget Office last month pointed out repeated deferrals in taxation can make taxpayers question the government’s will and capabilities in taxing crypto assets. The Ministry of Economy and Finance should feel ashamed if it failed to come up with a taxation framework during the grace period. Taxation can stimulate research in blockchain and advances in the infrastructure. It should get started within a limited scope, if necessary.