South Korea’s Minister of Strategy and Finance, Hong Nam-Ki, has announced that the controversial crypto tax regime will come into effect on January 1, 2022, this week, despite moves by the Democratic Party of Korea, with majority owners postponing it to 2023.
The tax law will impose a 20% tax on more than KRW 2.5 million cryptocurrency transaction proceeds, or approximately $ 2,100.
International media reported this week that the Democratic Party, which holds a narrow majority in the South Korean National Assembly, intends to pass a bill to postpone the crypto tax bill by the end of October. Still, the party faces a tough battle to get the bill passed against Hong’s opposition as the party had a slim majority.
Hong has significant political power, was Prime Minister of South Korea, and was appointed Minister of Finance by current President Jae-In Moon.
This is at least the second time that the minister, a member of the minority People’s Power Party (PPP) in the government, has told the majority of Democrats that despite objections, the tax will go into effect as planned.
Democratic Party Congressman Kim Byung-Ook asked the minister whether the tax could be deferred until 2023 to coincide with the capital gains tax on stocks. Kim said
“Doesn’t it make sense to tax stock market income and virtual assets in 2023?”
Minister Hong’s answer was a resounding “no.” He added that the tax law was drafted and finalized last year. His response mirrors a response in April 2021 when Hong made it clear that a crypto tax was inevitable.
“In the past, there was practically no tax on virtual asset accounts, so no tax. […] The foundation stone has now been laid, and based on this, we will be taxed from next year,” he said on Wednesday.
Change of the Democratic Party
Democratic Party MP Noh Woong-rae made it clear on Thursday that the ruling party could pass the military moratorium law if it rallied the votes.
But they face an uphill battle against one of the country’s most experienced and respected politicians at a time when the democratic majority is worryingly scarce. In the local elections in June, the Democrats lost 18 of their 180 seats in Congress, falling out of favor. There could be bad blood between the party and Hong as the Democrats once called for Minister Hong to be removed from office.
The Democrats oppose the law for several reasons, arguing that there is no adequate infrastructure for the government to compute and collect cryptocurrency taxes. The National Tax Service (NTS) currently plans to rely on cryptocurrency exchanges to report users’ transaction details for tax purposes.
To ensure exchanges can securely collect this data, the government has forced them to obtain an Information Security Management System (ISMS) certificate and partner with a local bank to maintain real-name bank accounts for every user. These requirements will be governed by an amendment to the Special Reporting Act that will close more than 40 cryptocurrency exchanges across the country on September 24.
NTS is unable to collect data from private wallet transactions for tax purposes. Faced with such a lack of infrastructure, Democrats believe tax evasion could increase.
Similar: Survey shows that Koreans support the crypto tax law
MP Noh shared a commitment to work bipartisan with fellow MPs to get the votes needed to pass the deferred bill by the end of the October open session.
This is the first time that the crypto tax law has been threatened with a delay. Shortly after the tax law was passed about a year ago, the Korea Blockchain Association was one of the first groups to call for a postponement. The KBA pointed out that institutions, including crypto exchanges, need a more extended grace period to prepare for the new taxes.
Opposition to the tariffs extends into the first half of 2021 from many sources, most notably the Democratic Party. In May, Koh Young-Jin, Secretary-General of the National Assembly, held an open meeting to discuss tax deferral benefits.