One of the promises Yoon Suk-yeol made to his constituents was to implement a series of crypto-friendly policies in South Korea. Yoon, who won in March and took office this month, said he would raise the tax threshold for crypto investment gains to 50 million won or about $38,922. But he is resisting.
South Korea’s National Assembly Research Service (NARS), which provides lawmakers with information and analysis on legislative and policy issues, classifies crypto as a virtual asset. It says the tax threshold for income generated from virtual assets should be 2.5 million won or $1,946 with a 20% tax rate, according to a notice posted last week.
The tax rate, NARS claims, is set at a similar level to that of financial investment income, so the asset class is “not heavily taxed.” But the proposed threshold is much lower than what Yoon is aiming for.
The new tax rules will come into effect in 2023 and a new digital asset regulator will be established. The country’s income tax system was introduced in December 2020. Yoon also pledged to support initial coin offerings, which were banned in 2017.
“What we can see now is that the government is opening up to the role of cryptocurrencies as an investment asset,” Jisu Park, CEO of Sooho.io, the Seoul-based smart contract control and infrastructure startup, told todaybusinessupdates.com.
“In fact, the presidential candidates have expressed their tentative support by proposing favorable tax laws, the possible return of IEOs (initial exchange offers), and have even seen the current president Yoon propose laws and infrastructure for NFTs. More importantly, Yoon’s has proposed the introduction of a new government body that would be responsible for the regulation of digital assets.”
South Korea is one of the world’s most crypto-active countries. The market grew to 55.2 trillion won ($45.9 billion) by the end of 2021, with the number of users reaching nearly 5.58 million or about 10% of the country’s population, according to one study by the country’s top financial regulator.
The crypto market in South Korea is booming, but also insular, partly due to legal restrictions. The space is dominated by five major local exchanges: Upbit, Bithumb, Coinone, Korbit and Gopax. Foreign and smaller players, on the other hand, have a harder time getting the government requirement: of cooperation with local commercial banks.
As in other countries, the crash of terraUSD (UST), an algorithmic stablecoin that aims to maintain its peg to the dollar using its sister coin Luna, has raised the alarm about crypto market volatility among regulators. South Korea’s financial authorities will step up their pace to issue digital asset regulation that includes consumer protection, local media reported† South Korean developer Do Kwon is the founder of Singapore-based Terraform Labs, the organization behind UST and Luna.
“Despite significant public and government support for digital assets, which could indicate that President Yoon’s proposals could take effect in the future, recent issues with things like Terra and UST impacted Korean investors and resulted in in a call for stricter regulations in the crypto industry. In the short term, this could delay the implementation of Yoon’s proposals,” Park suggests.
South Korean marketplaces have moved to suspend or warn luna, whose value has plunged to near zero. Bithumb, which plans to delist luna, currently has the coin’s seventh largest trading volume coin ranking†