Classification as miscellaneous income is not right
A symposium on cryptocurrency taxation was held Feb. 2 at the National Assembly. At the event, hosted by the Korea Blockchain Association, Global Finance Security and Lawmaker Choi Woon-youl of the Democratic party of Korea, participants agreed that taxation of cryptocurrency should be thoughtfully considered rather than opting for the easy way of classifying it as miscellaneous income. Balanced tax policy Korea Blockchain Association Chair Oh Gap-soo and Lawmaker Choi Woon-youl stressed that a balanced tax policy was of utmost importance. “To ensure the blockchain industry plays a beneficial role in finance and the economy of the fourth industrial revolution, a balanced tax policy system must be established,” said Oh. “Instead of imposing tax on the entire transaction volume or categorizing it as miscellaneous income as a whole for convenience, the most realistic solution would be imposing income tax on profit taken from the cryptocurrency exchange,” said Choi. In January, the government office overseeing income tax was newly assigned the task of cryptocurrency taxation, which sent a message to the market that the current government had set the general direction of classifying crypto assets as miscellaneous income. Foreign cases “The FATF uses the term virtual asset, while in Japan, it’s referred to as crypto asset,” said Professor Kim Byung-il of Kangnam University of tax and economics. The trend of cryptocurrency taxation is expected to develop in detail this year led by decisions of the U.S. Internal Revenue Service (IRS). The IRS views cryptocurrency as assets and will apply the general tax rules. Speakers at the symposium also pointed out that Korea needs to implement a policy that ensures transparency in cryptocurrency transactions in order to organize a more thorough tax plan. There were also opinions that in order to achieve that goal, legal definitions on money laundering, cryptocurrency and initial coin offerings should established beforehand. Experts also said that a cryptocurrency taxation infrastructure should be established to impose duty on exchanges to submit transaction records and in order to set taxation standards. The former is related to the recent issue of Bithumb’s tax. The experience in Japan “Imposing duty on taxpayers without establishing a proper tax system is a wrong practice,” said Chairman Oh Moon-sung of the Korean Tax Policy Association, who participated as the mediator. Attorney Kang Nam-kyu of Gaon Law said that pushing crytpocurrency’s classification as miscellaneous for the sake of convenience shouldn’t be done, adding that “social costs of reversing a hastily established law is enormous.” He cited Japan as a “country that succeeded in reforming a tax system for listed stocks. Korea should also take time to legislate cryptocurrency tax.” Kim Yong-min, Korea Blockchain Association tax committee head, also mentioned cases of countries dealing with cryptocurrency tax and opposed the idea of classifying cryptocurrency as miscellaneous income. “The United States and Europe are in the process of devising a systematic plan to tax cryptocurrency. Switzerland for example has assumed that cryptocurrency is closer to cash and decided to include it as part of asset tax, instead of seeing it as a capital gain. So the tax standard is not the profits, but the volume of cryptocurrencies owned,” he said. One country that classified crytpocurrency as miscellaneous income is Japan, but the decision prompted criticism inside the country. The tax rate for cyryptocurrency is maximum 55 percent. A side effect in Japan right now is that cryptocurrency exchange gains of around one billion yen are not being reported to authorities. To avoid such issues, one solution mentioned during the discussion was that the government should first start with imposing a low transaction tax in the process of developing a taxation infrastructure. In the long term, once the system is set, shifting it to a transfer income tax is one option.