In a significant development for the cryptocurrency landscape in South Korea, the government has announced a postponement of the implementation of virtual asset taxation from January 2025 to January 2027. This decision, proposed by the Ministry of Economy and Finance in July 2024, is driven by concerns over an underdeveloped tax system and the challenges of tracking overseas virtual asset investors, which could lead to potential tax evasion. The proposed tax involves a 22% levy on amounts exceeding 2.5 million won (approximately $1,850) and, if confirmed by the National Assembly, the total postponement period will reach five years. [8360d21e]
This delay comes at a time when South Korea's virtual asset market, which ranks third globally with over six million investors, has seen a drastic drop in daily trading volume—from 20 trillion won in March to just 2 trillion won. Experts have suggested that reclassifying virtual assets as financial products could facilitate better tax treatment and regulatory oversight. The U.S., Japan, and the UK have already implemented taxation on virtual assets, highlighting South Korea's cautious approach in comparison. [8360d21e]
In addition to the taxation delay, the political landscape in South Korea is also evolving as the parliamentary election approaches on April 10, 2024. The South Korean People Power Party has pledged to provide access to US Bitcoin exchange-traded funds (ETFs) if elected, aiming to attract voters interested in cryptocurrency investments. The opposition Democratic Party has made similar promises, indicating a bipartisan recognition of the importance of Bitcoin ETFs in the financial landscape. [50f40a7d]
The recent approval of Bitcoin ETFs by the US Securities and Exchange Commission (SEC) has sparked a global trend, prompting South Korea's Financial Supervisory Service (FSS) to discuss spot Bitcoin ETFs with the SEC in May. This reflects the growing demand for Bitcoin ETFs and the potential impact on the cryptocurrency market in South Korea. [abd89cd2]
Meanwhile, Lee Jeong-ryeol, head of the Seoul Southern District Prosecutors’ Office’s joint crypto investigation unit, has emphasized the need for courts to deliver swifter justice in cases related to cryptocurrencies. The establishment of a permanent virtual asset investigative unit aims to combat the surge in cryptocurrency-related crimes and fraud cases. Lee's team is the nation’s first dedicated cryptoasset investigation organization, focusing on swift investigations to aid victims in recovering their funds. [d0ff104f]
Globally, tax evasion among cryptocurrency users remains a pervasive issue. In the United States, the IRS is intensifying its efforts by issuing subpoenas to cryptocurrency exchanges and sending liability reminder letters to taxpayers. A report highlighted that in Norway, 6.9% of the population held cryptocurrency in 2021, yet 88% failed to declare their holdings, with an estimated average tax evasion of $200 to $1,087 annually per noncompliant individual. The effectiveness of reminder letters has been noted to increase compliance by 25 percentage points, indicating that targeted enforcement strategies could yield better results in addressing tax noncompliance. [ef2536fa]