South Korea’s ruling party, the People’s Power Party, has formally proposed to delay the implementation of the country’s tax on crypto trading profits until January 1, 2028. 

This marks a postponement from the original plan, which aimed to enforce the tax on January 1, 2025. The proposal, submitted on July 12, argues that the current sentiment toward crypto assets is unfavorable and that imposing taxes on virtual assets at this time would not be advisable. The party highlighted the higher risks associated with crypto than stocks, suggesting that an immediate tax could drive investors away from the market.

Since its introduction, the plan to tax crypto gains in South Korea has faced multiple delays. The tax was initially set to take effect on January 1, 2022. 

However, due to substantial backlash from investors and industry stakeholders, the implementation was pushed to 2023 and then again to 2025. The proposed 20% tax would apply to annual gains exceeding 2.5 million won (approximately $1,800), a significantly lower threshold than the 50 million won (about $36,000) threshold for stock gains.

The People’s Power Party, led by current President Yoon Suk-yeol, made a campaign promise before the April general elections to delay the crypto tax by two years. The party has argued that South Korea needs to establish a comprehensive crypto framework before imposing such taxes. They emphasized the necessity of a system to oversee crypto transactions, similar to the stock exchange, which would require about two years to develop.

Investor Concerns and Market Impact

Concerns among crypto investors have been growing due to the lack of clarity surrounding the proposed tax. These concerns have contributed to fluctuations in the prices of major cryptocurrencies. The daily trading volume on domestic exchanges, which was around 20 trillion won in March, dropped to the 2 trillion range, further exacerbating worries about the potential market impact of the tax.

Local media outlet The Korea Economic Daily reported that the government had already postponed the tax implementation twice due to criticism from the crypto industry. Some critics argue that the government has had sufficient time to prepare and that further delays indicate a lack of necessary action. 

One critic suggested that the government should have used the three years of preparation time to address the necessary preparations, stating, 

“We have already postponed implementation twice, and we had three years of preparation time.”

Government and Legislative Response

The Ministry of Strategy and Finance has not decided on the proposed delay. The ministry is expected to announce its position on the tax code by the end of this month. The ongoing deliberations come in broader discussions about taxes on financial investments in South Korea. The government had previously considered eliminating the tax on income from financial investments, adding another layer of complexity to the debate.

South Korea’s crypto market is one of the largest and most active in the world. As of the end of last year, approximately 6.5 million citizens, accounting for 12.5% of the population, used crypto. 

Data from Kaiko showed that the Korean won was the most-used fiat currency for crypto trading over the U.S. dollar in the first quarter of 2024.

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