South Korea: Gov’t Might Consider Taxing Bitcoin and Crypto as Financial Assets
South Korea’s Minister of Economy and Finance Hong Nam-ki said the government might tax crypto assets, like Bitcoin, as financial assets.
Hong emphasized that the main hurdle in taxing crypto assets is tracing trading activity and transactions. Once that is addressed, the minister said the government might consider taxing crypto assets as financial assets over time.
At the National Assembly’s Planning and Finance Committee’s Tax Policy State Audit, Hong said:
“If the trading activity of crypto assets can be transparently and systematically evaluated, we might consider taxing crypto assets as financial assets.”
It Could Be Considered a Positive Development For the Crypto Industry
There is one key reason the government is considering taxing crypto assets in a different way in the longer term.
Based on the existing regulatory framework, crypto assets are taxed in South Korea under the category of “miscellaneous or other income.”
The problem with categorizing crypto assets under such a broad definition is that it places cryptocurrencies in the same realm as gambling.
When regulators tax crypto assets in the same category as slot machines, it could unintentionally delegitimize the asset class.
That would counter the proactive approach major regional governments are taking to accelerate crypto and blockchain development.
During the meeting, other Congressmen criticized the current regulatory framework that inappropriately categorizes crypto assets.
South Korea’s main opposition party People Power Party member Seo Il-joon said in a statement translated by 8BTC:
“[Crypto assets] are categorized in the same way as income from slot machines and gambling. The government is being narrow-minded when addressing policies related to crypto assets.”
But over time, minister Hong said the government could explore ways to tax crypto assets as other financial assets.
As 8BTC extensively reported, regional governments including Seoul and Busan have led various initiatives to encourage the use of blockchain technology.
Busan, as an example, has been operating a regulation-free zone for blockchain startups to facilitate the sector’s rapid growth.
Appropriately and efficiently categorizing crypto assets would further aid the government’s effort to remain at the forefront of crypto and blockchain technology.
It would also allow South Korea’s crypto market, which remains as one of the world’s major markets by volume and trading activity, to sustainably grow.
Why Has South Korea Been Unable to Properly Tax Cryptocurrency Trading?
According to minister Hong, South Korea’s inability to accurately tax crypto trading is attributable to the difficulty of analyzing the crypto market.
He said that the size of the cryptocurrency exchange market exceeds $500 billion but the regulators struggled to analyze income from crypto trading.
“The size of the virtual asset market surpasses $500 billion but in the past, the government has been unable to tax crypto trading because of difficulties in analyzing income. After the approval of a crypto exchange bill, exchanges have started to provide relevant crypto trading activity. As a result, it has become possible to analyze income from the cryptocurrency industry and the government is now able to tax crypto trading,” Hong noted.
Although a clear taxation policy on cryptocurrency trading could further legitimize the local crypto market, it also could carry a negative implication.
There is a chance that a high tax rate could push local users to overseas markets that do not have a taxation framework in place. In the short to medium term, that could rattle the local cryptocurrency exchange market and potentially lead trading activity to decline.