The South Korean government is set to push ahead with its plans to roll out crypto tax in 2022 and could go on to tax non-fungible tokens (NFTs). Moreover, Seoul looks to be unshakable in its hardline policies, despite public pushback – while experts are warning USD 3.1bn worth of crypto is at risk if the three dozen or so non-big four crypto exchanges are allowed to go bust.
A number of online petitions have called on the government to reverse its bid to begin taxing crypto trading profits at a flat rate of 20% from January 1.
Seoul will order tax filings from anyone earning over USD 2,100 a year from crypto trading, a figure far lower than the USD 42,000 threshold for tax-free stock market trading profits on KOSDAQ-listed companies. Opposition MPs, members of the ruling Democratic Party, and traders have all called for either a review or a delay until 2023, but the government says it will not budge.
The nation’s Finance Minister and Deputy Prime Minister Hong Nam-ki told the National Assembly’s Planning and Finance Committee that he believed that crypto tax will go ahead as planned in January, and even justified the reason for the discrepancy with stock traders.
Parliament has already rubber-stamped the proposals, but a public backlash has forced a rethink in many quarters.
A member of the committee claimed that a “system should be adjusted to suit the characteristics of the people” who were using crypto, “such as young people.” The same MP challenged the government to explain the massive difference in the thresholds.
But Hong replied, per Newsis:
“Virtual assets are different [from stocks]. [KOSDAQ stock] investment is a financial asset whereby investment […] helps drive the South Korean economy.”
Hong added that the global financial sector still did not fully recognize crypto as a mainstream “investment asset.”
He pointed out that most “developed countries” were also introducing crypto tax or had already done so.
And in a possible wakeup call to NFT-related businesses, Hong also replied to a question about this type of token, stating that Seoul was “not yet” ready to tax NFT sales, but was actively “considering” proposals to do so.
Meanwhile, data from the Korea Fintech Association and Professor Kim Hyung-joong of Korea University has shown that USD 3.1bn worth of crypto may be at risk if, as expected, the vast majority of exchanges in the country are allowed to go out of business.
Trading volumes have dwindled at most exchanges, which were barred from offering fiat KRW pairings last month. Only four exchanges have obtained the banking partnership deals that have allowed them to continue operating in the fiat market.
Donga reported that some 180 tokens – labeled “kimchi coins” by some observers – are currently listed on only one platform, and that USD 3.1bn locked into such tokens on 25 of such exchanges, which are now restricted to crypto-to-crypto-only trading. As such, the media outlet observed, if the platforms do fold, the coins could become “as worthless as paper,” with thousands of South Korean traders set to lose out.
Some exchanges have attempted to mitigate the problem by opening bitcoin (BTC) markets for those now desperately trying to move or liquidate their “kimchi coin” holdings, but the media outlet concluded that the coins were nonetheless proving “increasingly difficult” to transact.
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