Markets
Korean Crypto Community Warns 20% Tax on Gains Could Devastate Market
South Korea’s crypto community is alarmed that the 20% tax on cryptocurrency gains could scare away investors and potentially ruin the market.
As South KoreaA 20% tax on cryptocurrency gains is on the horizon, with the local crypto community expressing concerns that the controversial rate will force investors out of the market. South Korea’s Ministry of Economy and Finance plans to impose a 20% tax on the amount exceeding the basic deduction of 2.5 million won (about $1,800), as well as an additional 2% local income tax.
Originally scheduled for 2021, the tax’s implementation has been postponed multiple times and is now scheduled for 2025. According to Chosun Daily, domestic exchanges like Upbit, Bithumb, and Coinone say trading volumes will drop significantly once the tax is implemented. They point to the disparity in financial investment income tax, where traditional instruments like stocks, bonds, and funds are only taxed on gains above $36,250, while the deduction for cryptocurrencies is only $1,800, making almost all crypto investors liable.
Aside from that, South Korea is set to implement the Virtual Asset User Protection Act, which will go into effect on the 19th of this month, and will require financial authorities to closely examine the suitability of currently traded cryptocurrencies. An anonymous spokesperson for a cryptocurrency exchange told Chosun Daily that the 20% tax will “deter investors” and predicted that “many exchanges will likely close next year” if the tax is implemented as planned.
Moreover, as crypto.news reported South Korea’s financial regulator has already set up a system to monitor unusual crypto transactions, urging exchanges to provide internal data. The system, which targets trades outside normal volume and price ranges, large trades, and unusually delayed executions, could pose “significant challenges for altcoins that cannot quickly meet regulatory standards,” according to Matt Younghoon Mok, senior foreign lawyer and partner at Lee & Ko in Seoul.