Watchdogs pressed on crypto tax plans

Finance Minister Hong Nam-ki, left, and Financial Services Commission Chairman Koh Seung-beom / Yonhap

By Lee Min-hyung

• Published Oct 3, 2021 3:51 PM KST
• Updated Oct 4, 2021 9:09 AM KST

'Unfair' crypto tax rules still face criticism

By Lee Min-hyung

Lawmakers are set to grill the leaders of financial watchdog agencies over the government's decision to levy income taxes on cryptocurrency trading starting in 2022.

Under the new tax policy, people whose annual cryptocurrency trading revenues top 2.5 million won ($2,100) will be subject to a tax equivalent to 20 percent of the income.

The decision, however, is still widely considered to be hasty, at a time when Korea's cryptocurrency market is still in its infancy and faces confusion amid a set of tough regulations imposed by financial authorities.

Lawmakers from both the opposition and ruling parties have also raised the need to delay levying the tax for another year to minimize confusion in the market. They argued it is more urgent for policymakers to establish legal safeguards to protect cryptocurrency investors before taking steps to tax them.

The central point is whether Finance Minister Hong Nam-ki will be able to justify the crypto taxation during an upcoming National Assembly audit on Wednesday.

But given his words during a recent Assembly interpellation session, chances are slim that the minister will change his stance regarding the crypto tax timeline.

“The cryptocurrency market has grown sharply and its size is as big as the benchmark KOSPI, but crypto traders do not pay any taxes at all,” he said. Hong flatly refused to consider delaying the taxation timeline, saying that doing so could increase confusion in the market.

But criticism over the tax plan is growing even within the ruling camp.

Rep. Yoo Dong-soo of the ruling Democratic Party of Korea (DPK) called for the need to revise the tax policy, as it comes with numerous loopholes on various issues, and opens up the possibility of tax evasion. Yoo is the leader of the DPK-led taskforce on cryptocurrency policy.

“The government needs to review the planned implementation of the policy, as it still lacks systematic enough details to win over the public and crypto traders,” he said. “Under the current plan, only those who report their revenue will have to pay taxes, which is not fair.”

There are more potential legal loopholes in the scheduled crypto taxation initiative, but the government and financial authorities plan to move forward with its quick implementation, citing the need to establish an infrastructure for crypto taxation, according to the lawmaker.

Yoo Seong-min, a minor presidential contender from the main opposition People Power Party, also criticized the crypto taxation plan as lacking “fairness,” one of the core criteria being pushed by President Moon Jae-in since he took office in 2017.

Starting from 2023, stock investors are liable to pay taxes on capital gains topping 50 million won, while they do not have to pay taxes below that level. But the standard for cryptocurrency is much stricter, which Yoo said is unfair.

“The government should put an end to the unfair crypto tax plan immediately, as it is not fair when compared with tax plans for stock trading,” he said.

Financial Services Commission (FSC) Chairman Koh Seung-beom will also attend the upcoming Assembly audit for the first time since taking office in August.

Koh will face questioning on the watchdog's plan to minimize any damage from its ever-toughening set of household lending rules. The FSC chief warned of a further tightening of regulations on loans, in order to control a steep rise in household debt. The new package of lending rules will be introduced sometime around mid-October, which comes as growing confusion among those who plan to receive loans from banks.

According to data from the Bank of Korea, the nation's total household credit topped a record 1,800 trillion won as of the end of June this year. Household credit means the total amount of debt held by all households here, including household loans taken out from financial institutions and credit purchases that have not yet been paid.

Citing the rapid rise in household debt, Koh has reiterated the need to control the pace through regulations.

Lawmakers will question whether such a strict regulation is necessary and urge the authority to come up with specific measures to protect customers from the regulation.