The Korean government appears to be considering imposing a 20 percent tax on cryptocurrency transactions
The Korean government appears to be considering imposing a 20 percent tax on cryptocurrency transactions, a shift, according to industry insiders, toward applying an income tax to the market. The move comes as the income tax division has recently taken over cryptocurrency taxation policy, which was previously handled by the property tax division. The finance ministry has not yet finalized its plan to tax cryptocurrencies, according to an anonymous government official quoted in a Jan. 20 Yonhap News Agency story. But the source indicated that the government may impose a 20 percent tax on cryptocurrencies, categorizing the proceeds as a type of income rather than the result of property transfer. The National Tax Service levied 80.3 billion won ($69.2 million) in withholding taxes on Bithumb Korea, a move that Yonhap says is a test for gauging the legitimacy of the imposition. Under the law, extra income covers all financial gains except for earnings from interest rates, dividends, business, work, retirement and the sales of property. Capital gains from side jobs such as lecturing, publishing a book or winning a lottery fall on the category. The incomes from illegal activities are also considered extra income. On the other hand, property tax is levied on assets like real estate and financial products. Therefore, if the authorities put proceeds from cryptocurrency trading under property tax, it would imply that they recognize cryptocurrency as viable assets. Placing it under the umbrella of income taxes allows the authorities to refrain from classifying cryptocurrency as an asset. The tax rates differ depending on the type of income. In most cases, a 20 percent taxation is imposed. If a lottery payout exceeds 300 million won, a 30 percent rate will be imposed. Therefore, many insiders see that the 20 percent is most likely unless the tax division set up a new range for cryptocurrencies. Still, if a total annual salary reaches more than 500 million won, the income tax rate could be as high as 42 percent. For annual incomes over 46 million won, the rate could range 4 percent to 22 percent. The rationale behind the decision lies in efficiency of taxation. Still, due to the nature of volatile cryptocurrency prices, it is hard to track their true value. The tax authorities could also levy taxes on the cryptocurrency exchanges. When an investor requests investment gains they could pay after deducting the income tax. For instance, if the exchange has to give 1 million won, it could deduct 22 percent income tax and pay out 912,000 won to the client. Since the exchanges are held responsible for charging, the tax office might be able to avoid paying additional administrative costs. Still, there could be a flashpoint. If the authorities consider cryptocurrency gains as extra income, there is a possibility where an investor should pay tax when they actually lose money. Even in that case, there is a way to get compensation afterward, when they report their general income tax. A person could include a document proving the loss. Additionally, it remains doubtful if crypto exchanges are willing to take on the role of deducting taxes, as their role is primarily confined to managing trading.