Debates rise over NFT taxation

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By Anna J. Park

Non-fungible tokens (NFTs) have emerged not only as a unique form of ownership of diverse digital products, but also as a key to furthering companies' digitization.

Major international and local companies in various sectors have revealed plans to expand their businesses to include NFT platforms. For instance, Dunamu the operator of the country's largest cryptocurrency exchange Upbit, officially announced a partnership with entertainment firm HYBE, Thursday, to explore NFT business opportunities. Investors responded to the news favorably and HYBE stock rose 3.46 percent in the day's trading by 2:25 p.m.

Facebook also changed its company name to Meta late last month to put emphasis on its “Metaverse” platform that will include an NFT market place. The company's share price rose more than 4 percent during the past few trading sessions, despite the recent negative impact from a whistleblower.

Gaming company Wemade saw its share price nearly triple in just a month, as the firm expanded into blockchain technology and NFT trading. The stock of Seoul Auction, a local auction house, also nearly doubled on the back of its involvement with NFTs.

While the growth of NFTs and their market seems an irreversible trend, taxation on earnings from trading NFTs still remains a blind spot here.

Currently, this trading is not subject to any taxation, as NFTs are not considered a virtual asset. However, the government is mulling over whether to create a taxation category for them.

“The government is mulling over whether NFTs can be regarded as a virtual asset, as there has been a demand for their inclusion in the virtual asset category for taxation,” Finance Minister Hong Nam-ki said last month.

As the government unveiled a plan to start taxing earnings on the trading of virtual assets such as cryptocurrencies from January next year, it now has less than two months to produce a detailed plan.

But as voices in the ruling party are calling for a delay in taxing cryptocurrency earnings by at least a year, taxation on NFTs and their inclusion into a legal framework seem even further away.

Even market insiders don't agree on whether NFTs should be regarded as a virtual asset or a work of art. In the face of existing legal loopholes and blind spots, NFTs could easily be used for tax evasion or money laundering.

Questions surrounding the legal definitions of newly-emerging assets using blockchain technology will continue to grow as the market for NFTs grows exponentially worldwide and the government and legislative body will need to catch up with the fast-changing business trend.