Bitcoin was designed to be a borderless currency that could be used without being affected by the regulations imposed by centralized agencies or government bodies. This is definitely not the case today as cryptocurrency users are subject to varying taxation regulation based on their location.
Over the course of the past few months, a number of tax agencies around the globe, have been in the process of creating new guidance frameworks for overseeing their respective crypto industries.
South Korea is one of the nations that made the headlines a couple of times with the Ministry of Economy and Finance seeking to derive financial benefit by taxing cryptocurrencies. The latest report from local English-language news outlet The Korea Times on Jan. 20 states that the Ministry is now considering imposing a 20% tax on crypto-based income.
According to the report, the Ministry had ordered its income office to review cryptocurrency taxation. An anonymous official reportedly said that the plan is not yet finalized but the regulators might impose it nevertheless.
The news follows reports from last month about South Korea going to levy tax on cryptocurrency capital gains. Prior to this, there was no framework to tax capital gains on digital assets, but the Ministry of Economy and Finance started drafting a tax bill that was scheduled for 2020. Alongside this, a bill focused on enhancing the transparency of cryptocurrency trading is also awaiting sanction.
Lack of regulations bad for business
Clear regulations regarding cryptocurrency taxation are much needed as many crypto businesses have had to suffer. Major South Korean exchange BitHumb was taxed $68.9 million which the exchange believed had no legal basis. Korean regulators cited that a foreign corporation that has no permanent establishment in South Korea has to pay withholding tax. Under the law, those paying salary income, pension income, and other income are required to withhold income tax at the time of such payment and pay it to the government.
South Korea’s crypto regulations have been largely boosted by Park Yong-jin, a member of the National Policy Committee from the ruling Democratic Party. Jin introduced the first-ever taxation policy in 2017 which laid the foundation for future regulations.
Even though cryptocurrencies aren’t being regulated yet, taxation laws like this could finally throw some light on where cryptocurrencies stand right now in the eyes of the governments. If Korean authorities decide to approach cryptocurrency taxation in the same way as they tax capital gains coming from stock trading, this would require Koreans to provide a detailed history of all their trading records from cryptocurrency exchanges.