Market participants broadly agree on the need for taxation but say much remains to be fixed with the levy just over 100 days away. Taxing stablecoins, which serve as a payment instrument, falls into the same category of concerns. Below are the four main points of contention raised by the industry over crypto taxation.
Government pledges standards this year; fairness disputes persist
Starting Jan. 1 next year, income from transferring or lending virtual assets will be taxed separately as "other income." A basic deduction of 2.5 million won will be applied to annual crypto income, with the remainder taxed at 20%. Including local income tax, the effective rate is 22%.
Other income refers to one-off or incidental earnings such as lottery winnings or prize money. When the crypto tax framework was first drawn up in 2020, the legal nature of virtual assets was unclear, so they could not be classified as financial investment income alongside stocks and bonds and were instead lumped into other income.
Lee said the same day that "classification as other income is appropriate in order to apply a tax regime favorable to taxpayers, including comprehensive income taxation and reduced tax compliance costs." But the market voices considerable concern.
Most immediately, classification as other income means losses cannot be carried forward and deducted in the following year. If an investor loses 200,000 won on bitcoin in the first year and earns 500,000 won the next, the actual two-year gain is 300,000 won. Under the tax code, however, the 200,000 won loss cannot be carried forward, so the full 500,000 won counts as income in the second year. By contrast, losses on overseas stocks or crypto-related exchange-traded funds are classified as capital gains on overseas stocks and can be netted against gains from other overseas stocks or ETFs. Coins do not qualify, but coin ETFs do.
The government says it has no legal basis to change the other-income classification. A senior government official said, "Something has to be defined in the Digital Asset Basic Act first; the tax authorities cannot change it before that."
Raise the basic deduction and combine with financial income
With the financial investment income tax scrapped, capital gains of small shareholders in listed stocks are in principle untaxed. Virtual assets, however, are taxed on annual income after a 2.5 million won deduction. Despite being similar investment assets, the tax treatment differs sharply.
The Digital Asset eXchange Alliance (DAXA) argued that "the 2.5 million won annual basic deduction should be raised and a loss carry-forward provision of at least five years is needed," adding that "over the medium to long term, an asset income taxation framework encompassing both financial investment income such as stocks and virtual asset income should be designed."
Critics also point to the absence of tax standards by transaction type. Since 2020, the market has moved beyond simple coin trading and lending to staking, lending, airdrops and decentralized finance. Digital assets with differing functions and characteristics have also emerged, including real-world assets, non-fungible tokens and stablecoins. Applying a flat 22% capital gains tax without distinction, critics say, makes little sense.
Verifying acquisition prices is hard; delay the start date
Current law imposes capital gains tax on residents and withholding tax on nonresidents. Unlike Korea's income tax law, however, the tax treaties Korea has signed contain no separate definition or income classification for virtual assets. If crypto trading gains are classified as other income, whether Korea's taxing rights are recognized will vary by individual treaty. Where domestic law and treaty classifications diverge for the same transaction, disputes between tax authorities and foreign investors over withholding and refunds could follow.
Calculating acquisition costs is also difficult. DAXA said, "For virtual assets that come in through overseas exchanges or personal wallets, there is no public system to verify the time and price of acquisition," adding that "if even one transaction with an unverified acquisition price is included, computing the capital gain becomes impossible."
That is not all. Stablecoins are being institutionalized as a means of payment, yet the tax code treats them the same as investment-purpose virtual assets, creating the contradiction that gains and losses must be calculated by comparing the acquisition price with the price at the time of payment every time they are used. A crypto industry official said, "The first step is to clarify the legal nature of virtual assets and their classification by asset type through the digital asset act," adding that "the start of taxation needs to be deferred further until the relevant rules are in place."
