South Korea faces scrutiny after the move to tax cryptocurrency

South Korea faces scrutiny after the move to tax cryptocurrency

By Benson Toti - min read

Several experts of the country believe that a tax on cryptocurrencies could damage the emerging industry

Local economists believe that the South Korean Government should refrain from making “rash decisions” when it comes to levying a tax on cryptocurrency. Many believe that the taxation scheme may end up blocking further industrial growth in the emerging digital currency market.

Led by the Ministry of Economy and Finance, the nation’s financial authorities have gone back and forth on the imposition of taxes on virtual currencies, in line with the rise of Bitcoin around the world, for years.

In an effort to wrap up the extensive discussions, the ministry of finance has recently decided to impose taxes on all transactions for cryptocurrencies. Minister Hong Nam-Ki said on Thursday that the government would announce a reformed tax system in July, with details regarding the encrypted currency taxation.

Sung Tae-Yoon, an economist at Yonsei University, said that the government “is premature to impose cryptocurrency taxes at a time when the market has not developed enough in a stable manner.”

Tae-Yoon added that from an economic point of view, cryptocurrencies cannot be considered a universal asset as opposed to traditional paper currencies.

He also voiced concerns that any strict regulations or taxation schemes may impede further growth in the overall digital currency market.

“The financial authorities should think twice before imposing taxes on the market, as the digital currency industry is still in its infancy. Any rash taxation or introduction of regulations can be a stumbling block for sustainable growth of the industry.”

While the finance ministry continues to conduct internal discussions on how the country should levy taxes on cryptocurrency transactions, many believe that the authority is likely to impose a capital gains tax on revenues generated by encrypted currency transactions.

This mirrors the country’s counterparts from the world’s leading financial powerhouses, such as Japan and the United States, where taxes are imposed on transactions involving Bitcoin and other encrypted currencies.

South Korea’s introduction of the new taxation system arrives in the midst of increasing concerns on the nation’s fiscal soundness after the government carried out its third round of expansionary budgets due to the economic downturn brought about by the coronavirus pandemic.

“By reforming the taxation system this year, we are going to consider introducing new types of taxation, such as digital tax,” Nam-ki revealed in a recently conducted National Assembly session. The digital tax refers to another layer of tax imposed on overseas IT companies (like Google and Amazon) for their online business activities.