National Tax Service drops 'tax bomb' on Bithumb
The National Tax Service (NTS) imposed a 80.3 billion won withholding tax on Bithumb. In Korea, regulations on levying taxes against cryptocurrencies haven’t yet been finalized, but the authorities are claiming revenue using the existing statutes. Bithumb is preparing to take legal action against the tax. A withholding tax is a charge against a company on payments made to others, as opposed to the payee filing with the NTS and settling the obligations themselves. The company is responsible for the collection and forwarding of the funds to the tax authorities, eliminating the possibility of tax dodging by those generating income within the country. The government argues that Bithumb, a cryptocurrency exchange, should have withheld the tax on trading by foreign clients. Bithumb plans to claw the money back from the traders, but that seems impossible at the moment. What kind of tax is levied on cryptocurrency? No specific regulation exists for taxing cryptocurrency trades in Korea, so the sector was a bit surprised by the move against Bithumb, even though only foreigners were charged. The government previously said it will announce a revision on tax laws in relation to cryptocurrency August next year. The National Tax Service charged payments made to Bithumb clients as 'other income' rather than as 'capital gains.' With capital gains, the levy is assessed against the difference between the purchase price -- of assets like real estate and stocks -- and the sale price. Other income is miscellaneous earning that do not fit in any other categories. Why 80.3 billion won? The government is believed to have chosen 'other income' because capital gains tax would be difficult to calculate. To impose a capital gains tax, the government needs to know the original price, and that is very difficult to determine with cryptocurrency trades. Foreigners were banned from owning cryptocurrency accounts in 2017, but before then, they could freely deal on the exchanges. Trades could be made under assumed names, making it difficult to know the initial investment amount. Do Koreans have to pay taxes? In Korea, cryptocurrency trades cannot yet been taxed, because crypto is not yet defined as an asset. “But foreigners living in Korea are treated the same as Koreans, and therefore, won’t be levied taxes,” said lawyer Kwon Oh-hun from Oh Kims Law & Company. The recent tax could “make other cryptocurrency exchanges subject to the same tax,” said a source in the industry. “The government seems to be threatening the entire cryptocurrency industry.” Will Bithumb endure? Bithumb earned in 265.1 billion won in operating income in 2017 and 256.1 billion won in 2018, but it is seen as having done poorly this year. It reduced head count by 40 percent. Paying 80.3 billion won in tax could be a huge blow to the company. The recent tax was discovered when Vidente, the biggest shareholder of Bithumb Holdings, issued a public announcement last week.