Lee Hyoung-il, the nominee for deputy prime minister and finance minister, said publicly at his National Assembly confirmation hearing on the 15th that the government will begin taxing cryptocurrency in January. "The tax burden will be minimal for most investors," he said. "Starting now will cause less of a shock than people expect." In 2020, the National Assembly amended the income tax law to impose a 20% rate on gains from cryptocurrency transfers and on income from lending crypto above 2.5 million won a year. The law originally set the start date at 2022, but it was pushed back repeatedly amid incomplete rules and investor pushback.
The basic tax principle — that income should be taxed wherever it arises — deserves to be upheld. The problem is that the framework for collecting the tax and the safeguards for investors remain inadequate even as the levy on cryptocurrency, commonly called coins, draws near. For transfer gains, the standard for determining acquisition cost is ambiguous. For lending income, the term "lending" has not even been defined. Obtaining transaction records is also difficult for investors who use overseas cryptocurrency exchanges.
Investors are pushing back hard over the absence of loss carryforward relief, which Japan, Britain and others allow to account for investment losses. Consider an investor who loses 10 million won in 2027 and earns 10 million won the following year. Cumulative gains and losses come to zero, yet the investor still owes tax on the 2028 profit. There is also a major dispute over fairness relative to the financial investment income tax. When lawmakers amended the income tax law in 2020, both parties agreed to levy that tax on financial investment income above 50 million won a year, then granted a two-year deferral before scrapping the provision altogether at the end of 2024. That history has raised concerns that taxing crypto will only drive investors overseas.
The government's struggle to put fair taxation into practice is not hard to understand. Even so, the plan must not be rushed through without careful preparation to resolve the many outstanding problems. What matters is refining the rules and the infrastructure first, so that the tax can be applied on a reasonable basis. Safeguards for the more than 13 million investors also need to be expanded urgently. Wrapping all of this up within the year may leave too little time. If necessary, the government should give serious consideration to deferring the start date once more.
