Several national experts warn that a cryptocurrency tax could harm the emerging crypto industry
Local economists believe the South Korean government should avoid making hasty decisions when considering taxes on cryptocurrencies. Many warn that an overly burdensome tax regime could stifle the continued growth of this nascent industry.
Led by the Ministry of Economy and Finance, financial authorities have been examining how to tax virtual currencies for years in response to the global rise of Bitcoin.
To conclude those long-running discussions, the Finance Ministry recently decided to move forward with taxing transactions related to cryptocurrencies. Minister Hong Nam-ki announced on Thursday that the government will unveil comprehensive tax reform in July, including details on how cryptocurrencies will be taxed.
Sung Tae-yoon, an economist at Yonsei University, cautioned that the government may be acting prematurely by imposing taxes on cryptocurrencies while the market remains insufficiently mature and unstable.
Tae-yoon noted that, from an economic standpoint, cryptocurrencies cannot yet be treated as equivalent to traditional assets or currencies. He expressed concern that strict regulation or a heavy tax regime could hinder the overall development of the digital asset market.
“Financial authorities should think twice before applying taxes to the crypto market, since the digital currency industry is still in its early stages. Thoughtless taxation or regulation could undermine the industry’s prospects for sustainable growth,” he said.
As the Finance Ministry continues internal discussions about how to tax crypto transactions, many expect authorities will target capital gains tax on income generated by crypto trading.
That approach would align South Korea with other major financial powers, such as Japan and the United States, where taxes are levied on gains from Bitcoin and other digital currencies.
The move to introduce a new tax system in South Korea comes amid growing concerns about the nation’s fiscal strength after the government enacted its third round of expansionary budgets to combat the economic slowdown caused by the coronavirus pandemic.
“When we reform the tax system this year, we will consider introducing new forms of taxation, such as a digital tax,” Nam-ki said during a recent parliamentary session. The digital tax refers to an additional levy on foreign tech firms, like Google and Amazon, for revenue earned through online business activities in the country.
Translated by Carolane de Palmas