In a strategic move ahead of the upcoming general elections, South Korea’s ruling party, the People Power Party (PPP), has announced plans to push for a further two-year delay in the implementation of crypto taxation, local media reported Feb. 19.
Party officials announced the intention to explore the delay as a key campaign promise during a Feb. 19 press conference. The proposal will explore delaying taxation commencement to January 2025.
The decision aligns with the government and legislative consensus to prioritize regulatory groundwork before enforcing taxation on virtual assets.
Regulation before taxation
PPP argues that a foundational regulatory “system” must first be in place for crypto before taxation can be feasible.
The decision aligns with the government’s broader financial policy trends, including the abolition of financial investment income taxes and the relaxation of criteria for major stock transfer income tax shareholders.
A senior party official said establishing a solid taxation foundation was very important. However, the lack of a comprehensive regulated trading platform and the challenges in income verification with crypto companies are significant obstacles in effectively collecting tax on virtual assets.
The official added that taxation needs to be delayed by at least two years to ensure there is a comprehensive system in place that is ready to tackle the complexities of crypto.
New legislation
PPP said it plans to propose the second phase of the “Cryptocurrency User Protection Law” during the upcoming 22nd National Assembly to address gaps identified in the first phase of the law, which was passed in June 2023.
The first phase primarily focused on investor protection and the penalization of fraudulent activities but was criticized for its limited scope and failure to establish a comprehensive regulatory framework.
The proposed legislation will center around defining custodial service providers, legally incorporating listing systems, and establishing a crypto exchange, among other things, to address the need for comprehensive regulation and oversight within the virtual asset market.
Some taxation to remain
Despite the push for a delay, PPP maintains that completely abolishing crypto taxation is not under consideration, adhering to the principle of taxing income.
However, the party is exploring adjustments to the taxation criteria, addressing criticisms of tax disparity between stocks and virtual assets. The proposal aims to harmonize the tax treatment of various asset growth strategies, acknowledging the challenges in tracking investment amounts and returns for taxation purposes.
The party’s leadership said that finalizing the central electoral promises by February is crucial for a timely announcement, signaling a swift move towards formalizing this stance as part of their election campaign strategy.
Under the current law, income from the transfer or lending of virtual assets exceeding KRW 2.5 million is subject to a 22% tax, including local taxes, a stark contrast to the KRW 50 million non-taxable limit for stocks.
