In Korea, the taxation period for virtual asset transaction income has been postponed for three months from October 2021 to January 2022.
The National Assembly Planning and Finance Committee of Korea held a plenary meeting on the 30th of last month and decided on amendments to the tax laws such as the Income Tax Act and the Individual Consumption Tax Act.
◆Special Law Business Report Deadline September, Reflect time to prepare tax infrastructure
According to the tax law amendment announced in July, the Ministry of Strategy and Finance classified virtual asset transaction income as other income and applied a 20% tax rate. Up to 2.5 million won per year is a tax-free section, and the time of application is announced in October 2021.
At the time, the Ministry of Information and Communication said, "After the enforcement of the Special Money Act, the tax application period was set on October 1, taking into account the reporting period of the virtual asset business entity." When the revised bill of the Act on Reporting and Use of Specific Financial Transaction Information (hereinafter referred to as the Special Privileges Act) comes into force in March, virtual asset business operators, including exchanges, must meet the set requirements and report their business to the financial authorities. The period for this report is until September, six months after the enforcement.
However, virtual asset providers such as exchanges pointed out that the timing of taxation is too early. In order to cooperate with taxation, the exchange needs to establish a taxation infrastructure, but it is a tight time to build the infrastructure before October after completing a business report in September.
Accordingly, the Korea Blockchain Association, which has exchanges as members, issued a statement requesting that the tax period be delayed.
The association explained, "Because the right to collect personal information of users is granted only when the report is accepted, it is impossible to extract tax data from October 2021, no matter how early it is." It also argued that "the enforcement date should be postponed to January 1, 2023, which is the same as the effective date of the expansion of the capital gains tax on stocks."
◆Stock capital gains tax is 2023, Controversy over equity is expected to continue
The government has reflected the voice of the industry to some extent, but has not fully accepted it. The tax application period was only postponed for three months to January 2022, not to 2023, the same as the stock capital gains tax.
Therefore, the issue of equity with the stock market will continue to be raised. At the time of the statement, the association also said, “The plan to expand the capital gains tax on stocks was relatively short on October 1, 2021, although the effective date was January 1, 2023 even though the taxation infrastructure was in place. He pointed out that it is against fairness to give one preparation period.” This does not change much when the timing changes to January 1, 2022.
Excessively low tax-free limits and high tax rates are also likely to remain controversial. The capital gains tax on stocks has a tax-free limit of 50 million won per year, compared to 2.5 million won for virtual assets. In addition, the tax rate is 20%, with the other income tax rate applied, and the 2% local tax is actually 22%.
For example, if you earn 10 million won in bitcoin (BTC) for one year and lose 5 million won in Ethereum (ETH), the total amount of income is 5 million won under the assumption that there are no necessary expenses. Up to 2.5 million won is a tax-free section, so only the remaining 2.5 million won is subject to a 20% tax rate. Therefore, a person who earns 5 million won in virtual asset investment will pay about 500,000 won in tax alone.
Virtual asset investors criticize the tax rate for being too high. It is pointed out that charging a high tax rate is too much when there is only a special law to regulate virtual asset providers, and there is no legal definition for virtual assets.
One specialized virtual asset investor criticized, “The tax base in the stock market and the tax base in the virtual asset market are markedly different. It is inappropriate to come up with a tax plan without properly recognizing virtual assets as legal assets.
It is expected many Korean people will move to other channels to invest bitcoin or altcoin after the taxation.