The South Korean government has ordered the implementation of a tax law that will require a variety of assets to pay taxes. Said tax law will be effective in 2021; five months from now.
The announcement was made on the 22nd of July by the country’s Ministry of Strategy and Finance with a “2020 Tax Law Amendment,” name tag. As contained in the law, the affected assets are classified as “casual assets,” and are subject to paying taxes on transfer gains. Assets include Real Estate, Digital Currencies, and Stock.
Another 20% annual taxation is required on other types of income. The Internal Revenue Service (IRS) will now monitor foreign exchange investors, all of whom are required to relay their reports to the IRS.
The Market Conditions may be Unfavourable for Crypto-Related ventures
Once the new tax policy is implemented, a domestic exchange will create a system where transaction details can be submitted to the national tax service in a quarterly manner. This will help ease the friction in terms of proving the actual acquisition price of a digital currency. But still, a little problem lies underneath.
Because acquisition price is a key factor, calculating the number of digital currencies acquired before the implementation of the law may create unfavorable conditions for the taxed individuals, who will then be required to prove their transaction history to the IRS or risk current market prices being set as acquisition price. This will take place on the 30th of September, 2021; prior to the enforcement of the new tax law.
Mass Sale Could Make things Even Harder
“Because there is no real taxation, confusion may arise from the mass sale.” These were the words of one of the members of the Ministry of Information and Technology, who explained that there is yet to be a system that evaluates the market prices on the day before the taxation. Hence, there will be no tax on transfer gains before the 30th of September.
The unavailability of this could cause the market to drastically fluctuate, as purchases are likely to skyrocket in a bid to evade taxation.
For parties who acquire digital currencies post-taxation enforcement, but fail to provide the history of the transaction, acquisition proves will be set at 0 won while 22% of the transfer amount will be paid in tax.
Is South Korea going back and forth with Digital currencies?
The legalization of digital currencies in South Korea on the 5th of March is in itself an emphasis on the fact that the nation is embracing cryptocurrencies with full force.
However, some observers are arguing that South Korea may not be as open to cryptocurrency adoption after all.
Joseph Young a Crypto-analyst commented on this saying that the “policy does not go in line with the message it’s trying to send out.” Meanwhile, Blockchain adoption has continued its reign in the country.
The prioritization of Blockchain technology in South Korea’s private and Public sectors suggests that there is still hope for digital currencies.