South Korean Government to Delay Crypto Tax Implementation by 2 Years

South Korea, one of the largest markets for cryptocurrencies in the Asian region, has chosen to delay a crypto taxation law designed to bring more structure to its local cryptocurrency industry.

Earlier this week, the government reportedly announced that it would postpone a capital gains tax on cryptocurrencies that was supposed to launch by early next year.

Pumping the Brakes on a Crushing Tax Plan

According to local news reports, South Korea’s government and financial regulators have voted to push the implementation of a capital gains tax on digital assets until 2025. The tax rule, which was initially scheduled for implementation by March 2023, has now been postponed because the government is looking to provide more clarity on its vision for the crypto market – both at home and abroad.

In a speech delivered earlier this week, Kim Young-jin, chairman of the Tax Subcommittee and one of the most prominent lawmakers calling for the government to repeal the proposed tax, explained that the focus now should be on properly regulating the local crypto industry of South Korea. As he explained, building a strong crypto economy should precede the imposition of strict taxation rules on industry participants.

South Korea has been dealing with this taxation issue for over a year now. The current 20% tax was approved in January 2021, with the government at that time approving a tax plan that will levy charges on digital assets. At present, Asia Today reported that the proposal introduced several additional taxes on capital gains, with a progressive schedule across the country.

Anyone making over 2.5 million won in annual income from digital asset profits for crypto holders would be taxed at 20%. On the flip side, the 20% taxation for stocks would kick in for people with over 50 million won.

However, the plan received immediate pushback from many in South Korea’s crypto industry. Following several rounds of negotiations, representatives from the Tax Subcommittee in South Korea’s National Assembly reached a bipartisan agreement to amend the tax bill and postpone it by one year.

Among the amendments, lawmakers proposed assuming a 0 won cost basis for cryptocurrencies that had been lying dormant in private wallets. The amendment would have created a massive tax burden for long-term crypto holders who had been holding their digital assets in private wallets before the implementation of the tax rule, as they would have been taxed on the full price of their coins – not just the gains they made on investments or holding.

Still, the tax amendment confirmed that the 20% tax on coin holdings and profits would stand.

Government Oversight Growing with the New Administration

While the delay in the tax regime would likely comfort South Korean cryptocurrency owners, this is not the only indication that the government is keeping an eye on the market.

In May, following the collapse of the Terra stablecoin ecosystem, industry news sources confirmed that the South Korean ruling party planned to launch the Digital Asset Committee – a watchdog over the country’s local crypto industry that would oversee policy preparation and supervision.

The South Korean government has also been working to establish an overarching crypto framework. Leaked documents from early May reveal that the ruling party is looking to introduce a Digital Asset Basic Act (DABA) in the coming year and follow it up with even more legislation by 2024. The DABA is part of a group of over 100 policy proposals that newly-elected President Yoon Suk-yeol is looking to enact during his administration.

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