South Korean Minister of Strategy and Finance Hong Nam-ki has vowed that the controversial crypto tax code will come into effect on Jan. 1, 2022, despite moves this week by the majority Democratic Party to postpone it to 2023.
The tax code will levy a 20% tax on income generated by crypto transactions in excess of 2.5 million Korean won, or about $2,100.
International media this week reported that the Democratic Party, which holds a slim majority in South Korea’s National Assembly, intends to have passed a bill postponing the crypto tax law by the end of October. But the party faces an uphill battle to pass the bill in the face of Hong’s opposition, as it holds only a slim majority.
Hong carries a tremendous amount of political power, having been a former prime minister of South Korea, and he was appointed finance minister by current President Moon Jae-in.
This is at least the second time the minister, who is a member of the minority People’s Power Party (PPP) in the country’s government, has told the majority Democratic Party that the tax would come into effect as planned despite their opposition.
Kim Byung-ook, a National Assembly Representative from the Democratic Party, asked the minister in a National Assembly session on Wednesday whether the tax could be postponed until 2023 to coincide with the capital gains tax on stocks. Kim said:
“Isn’t it reasonable to levy the stock market capital gains tax and virtual asset tax in 2023?”
Minister Hong’s response amounted to a resounding “No.” He further stated that the tax law had already been drafted and completed last year. His response mirrored one made in April 2021 when Hong made it clear that crypto taxes were inevitable.
“In the past, it was almost impossible to collect taxes on virtual asset accounts, so no taxation was carried out [...] The foundation has now been laid, and based on that, we will be taxed starting next year,” he said on Wednesday.
Democratic Party amendment
Representative Noh Woong-rae from the Democratic Party on Thursday made it clear that the ruling party could pass the postponement bill if they can gather the votes.
But they face an uphill battle going up against one of the most seasoned and highly respected politicians in the country at a time when the Democratic Party’s majority has become precariously narrow. The Democratic Party lost 18 of its 180 National Assembly seats in local elections in June, showing that they have fallen out of favor. Some bad blood may also exist between the party and Hong since the Democratic party once called for Minister Hong’s dismissal from office.
The Democratic Party is opposed to the bill on a number of grounds and contends that there is inadequate infrastructure in place for the government to calculate and collect crypto taxes. As of now, the National Tax Service (NTS) plans to rely on crypto exchanges to report users’ transaction data for the purpose of calculating taxes.
To ensure exchanges can securely collect this data, the government has compelled them to obtain Information Security Management System certification and a partnership with a local bank for real-name bank accounts for each individual user. These requirements, stipulated by the amendment to the Special Reporting Act, will lead to closures of more than 40 crypto exchanges across the country by Sept. 24.
The NTS does not have the capability to collect data from private wallet transactions for the purpose of taxation. In the absence of such infrastructure, the Democratic Party believes tax evasion may increase.
Related: Survey shows South Koreans support crypto tax law
Representative Noh shared his commitment to working across party lines with fellow representatives to secure the votes needed to pass a postponement bill by the end of the open session in October.
Long history
This is far from the first time the crypto tax law has been threatened with postponement. Shortly after the tax bill was passed about a year ago, the Korea Blockchain Association was among the first group to call for postponement. The KBA pointed out that institutions, including crypto exchanges, would need a longer grace period to prepare for the new taxes.
Opposition to the tax mounted through the first half of 2021 from several sources, not least of those being the Democratic Party. In May, Koh Young-Jin, secretary of the National Assembly, discussed in the open session the benefits of postponing the tax.