[Crypto Taxation] Capital gains tax on crypto generates a strong response

Korea’s Finance Ministry on July 22 said it would levy a capital gains tax on profits made from cryptocurrency trades. Opinions poured forth, issued by everyone from individual investors to professionals. According to the new regulation, those who gain from cryptocurrency trades must report the gains to the local authorities in order to pay tax every May. If an individual reports capital gain from cryptocurrency trades, authorities should be able to verify and look into their reports. Records of trades made on domestic cryptocurrency exchanges are disclosed transparently. However, trades done on overseas platforms are hard to verify unless the exchange cooperates with Korean authorities. The latest tax revision in Korea on cryptocurrency trades might push domestic users to overseas platform for that reason. “There are concerns, but there is nothing domestic exchanges can do at the moment,” said a source from Korea’s mainstream cryptocurrency exchange. “It is a global trend to levy tax on capital gains from cryptocurrency trades,” another source from the industry said. “There are people who oppose the new regulation, but it doesn't mean that they would immediately shift to overseas platform.” There should be more detailed guidelines on the tax regulation to determine how the users would react, according to the source. Small or midsize exchanges said it comes as a burden to have tax levied on the trades. “From our point of view, we were already busy preparing for the implementation of the revision on the Act on Reporting and Using Specified Financial Transaction Information. The need to come up with another new system for new tax regulation is a burden for us,” said a source from domestic midsized cryptocurrency exchange. “The new system is not related to increasing profit, which is why we feel more burdensome.” Another source said a standardized system should be prepared before implementing the new regulation. Shifting to overseas platforms to avoid tax regulation is not an unconditional solution, sources say. Even if one goes over to overseas platform, tax will still be levied. For exchanges that do not cooperate with Korea, those platforms will be considered illegal in Korea, according to the sources. Regarding claims that Korean users will use domestic platforms just because reporting capital gains obtained from overseas platform will be complicated, this source was skeptical. “It is questionable the users will use domestic exchanges just to pay tax well,” the source said. Some professional investors in cryptocurrency say they will liquify their virtual asset before the regulations go into effect. “A lot of investors who own virtual currency will try to cash them in before the regulation goes into effect,” one of the investors said. “The latest tax regulation has a negative influence on the investors. Receiving tax means the authority has the responsibility to protect the investors, but the latest plan seems like they are only trying to collect money.” The source also said, “people might think they can avoid tax if they use decentralized exchanges however since it is hard to exactly determine the tax amount for those exchanges, the authority is likely to levy the highest rate of tax on these platforms.”

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