One of the pledges Yoon Suk-yeol made to his voters was to implement a set of crypto-friendly policies in South Korea. Yoon, who won in March and came into the office this month, said he would raise the tax threshold for crypto investment gains to 50 million won or around $38,922. But he’s getting some resistance.
The National Assembly Research Service (NARS) of South Korea, which provides information and analysis on legislative and policy issues to lawmakers, 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 tax rate of 20%, according to a notice posted last week.
The tax rate, NARS maintains, 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 strives for.
The new tax rules are set to take effect in 2023 and a new regulatory body for digital assets will be established. The country’s asset income tax system was introduced in December 2020. Yoon also vowed to support initial coin offerings, which were banned back 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 Seoul-based smart contract auditing and infrastructure startup Sooho.io, told TechCrunch.
“In fact, the presidential candidates expressed cautious support by proposing favorable tax laws, the potential return of IEOs (initial exchange offerings), and have even seen current President Yoon propose laws and an infrastructure for NFTs. More significantly Yoon has proposed the introduction of a new government body that would be responsible for regulating 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 around 10% of the country’s population, according to a study by the nation’s top financial regulator.
The crypto market in South Korea is booming but also insular in part due to regulatory 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 meeting the government requirement of partnering with local commercial banks.
As in other countries, the crash of terraUSD (UST), an algorithmic stablecoin that aims to maintain its pegs to the dollar using its sister coin Luna, raised the alarm about the crypto market’s volatility to regulators. South Korea’s financial authorities will speed up their pace to enact a digital asset regulation that includes consumer protection, local media reported. South Korean developer Do Kwon is the founder of Singapore-based Terraform Labs, which is the organization behind UST and Luna.
“Despite the significant support from the public and government for digital assets, which could indicate that President Yoon’s proposals could come into effect in the future, recent issues for example with Terra and UST affected Korean investors and resulted in a call for stronger regulation in the crypto industry. In the short term, this may slow the execution of Yoon’s proposals,” suggested Park.
South Korean marketplaces have moved to either suspend or warn against luna, of which value has collapsed to nearly zero. Bithumb, which plans to delist luna, currently has the seventh-largest trading volume of the coin, according to Coinranking.