South Korea To Tax Cryptocurrency, Could Be As High As 20%

KEY POINTS

South Korea plans to impose 20% tax on cryptocurrency
This initiative is done in accordance with the government’s realignment of the tax system
In 2019, the government levied a $66 million tax bill to Bithumb, the country's largest crypto exchange

South Korea’s finance ministry is set to announce more details next month on its planned imposition of a 20% tax on income derived from cryptocurrency transactions.

Speaking before the country’s finance committee, finance minister Hong Nam-ki said this initiative is done in accordance with the government’s realignment of its tax system “and to reflect changes in the market conditions.” According to news outlet Korea JoongAng Daily, the country will refine its list of taxable items and types of tax this year,” the finance minister said.

The announcement will not come as a surprise for Korean cryptocurrency owners since the new tax was first announced earlier this January. Korea JoongAng Daily said this raised speculation that cryptocurrency income might be categorized as other income -- similar to gains from lottery purchases -- and not as capital gains.

Finance Minister Hong also said South Korea is party to global discussions about a new type of digital tax. “Personally, I believe a digital tax needs to be imposed as a new type of tax,” he said. He noted, however, that while this can increase the country’s revenue from foreign firms, local firms might be exposed to overseas taxation.

In 2019, South Korea’s National Tax Service (NST) levied to Bithumb a $66 million tax bill. Bithumb, the largest exchange in the country, contested the penalty, on the grounds that cryptocurrency is not a legally recognized currency. Whether to the boon or bane of crypto companies and users, the clear initiative to tax cryptocurrency is a major step in establishing clear regulations in the country.

While the finance ministry is busy with how to tax cryptocurrency, the Bank of Korea (BOK - Korea’s Central Bank) recently formed an advisory group with regards to the issuance of a Central Bank Digital Currency (CBDC). A 22-month pilot test is currently being undertaken to assess the issuance of CBDC. BOK, however, is certain there is no immediate need to release CBDC. If that’s the case, neighboring country China will likely launch its own version of CBDC first domestically before other countries, like the United States, do.