South Korea will push through with its digital currency taxation plans despite opposition from the majority political party and some in the digital currency space. The country’s finance minister has vowed to fight the dissent and believes that the government is well prepared to levy taxes on digital currency earnings.
South Korea has been seeking to tax the digital currency industry for years but up until a year ago, there was no legal framework for this. Then came the tax bill which the country’s parliament passed and is set to take effect on January 1, 2022. It imposes a 20% tax on income generated from digital currency transactions above 2.5 million won ($2,110).
Nothing will stop the taxes, minister says
However, dissenting voices have propped up from the digital currency industry and the political circles. The Korean Blockchain Association was the first to ask for a postponement, arguing that service providers such as exchanges would need more time to prepare for the new tax regime.
Then came the Democratic Party, which has a slim majority in the national assembly. It’s this dissent that has persisted and which poses the biggest impediment to the imposition of the new tax regime in January.
In a recent parliamentary session, the Democratic Party’s Kim Byung-ook asked Finance Minister Hong Nam-ki, “Isn’t it reasonable to levy the stock market capital gains tax and virtual asset tax in 2023?”
Hong was clear in his response that the government is determined to move ahead with the tax regime next year. He said that the government has given the digital currency industry enough time to prepare and the time has come for them to pay their dues.
“In the past, it was almost impossible to collect taxes on virtual asset accounts, so no taxation was carried out […] The foundation has now been laid, and based on that, we will be taxed starting next year,” he stated, as reported by the Newsis News Agency.
However, despite his drive, the finance minister may not be able to push through with the tax regime if the Democratic Party marches on with its plans to pass a postponement bill until January 2023. The party has the majority of votes in the national assembly and has revealed it’s willing to work even with legislators from its rival People’s Power Party just to pass the bill.
The finance minister’s commitment to the current bill may, however, turn out to be a significant factor. After all, he is one of the longest-serving leaders in the country and has great political influence.
A race against time as Sept 24 approaches
As the politicians fight it out in parliament, for the digital currency firms, it’s a race against time as they strive to become compliant with the new regulations before the September 24 deadline.
The regulations are greatly tuned towards ensuring the government has greater oversight over the traders to ensure they pay their taxes. One of the laws geared towards this is the one requiring all exchanges to have a partnership with a bank and open real-name accounts. This makes the transactions easier to monitor and audit for tax reasons.
This requirement has put the exchanges between a rock and a hard place. On the one hand, the government is pushing them to partner up with banks, while on the other, the banks are still reluctant to work with exchanges, claiming their business is too risky.
Another legal requirement that the government is pushing is for all exchanges to acquire an Information Security Management Systems (ISMS) certification from the Korea Internet and Security Agency (KISA). Only a handful of exchanges have managed to acquire this license. According to local reports, over 40 exchanges in Korea will have to shut down on September 24 since they are yet to fulfill these obligations.
The Democratic Party argues that there are still too many loopholes with the new tax regime. If the government is unable to enforce the new regime, it will only encourage more tax evasion in the industry, and eventually, this could spread to other sectors. It intends to pass the postponement bill by the end of October.
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