Fri. Aug 19th, 2022

The South Korean government is looking to impose taxes on any income that is generated from cryptocurrency transactions.

South Korea Reviewing A New Tax Proposal

South Korea is currently one of the most significant countries in terms of cryptocurrency adoption. As more people turn to these digital currencies in the Asian country, the government is now looking to impose a tax on income generated from crypto transactions.

According to a news report by a local media outlet, Yonhap News Agency, officials from the Ministry of Economy and Finance’s income tax office are currently looking into a new tax proposal that could see South Korea adopt a clearer path in terms of cryptocurrency taxation.

An anonymous source told the media outlet that South Korean officials are leaning towards re-classifying cryptocurrency income as a type of “other income.” If they do this, then cryptocurrency returns would be in the same category as earnings made from lotteries. This means that crypto income would no longer be regarded as a form of capital gains.

According to the current South Korean legislation, other income has a 20% rate charged on 40% of the total earnings. The remaining 60% of the profits can be tax-deductible. At the moment, cryptocurrency earnings can be taxed under different schedules, with taxation rates sometimes as high as 42% under capital gains.

The Ministry of Economy and Finance has been pushing for a new cryptocurrency tax policy for the past few weeks. In December, a spokesperson for the ministry told The Korea Times they are currently working on a revised bill for boosting the government’s ability to tax cryptocurrencies. The bill should be ready in the first half of 2020, the official added.

The spokesperson pointed out that the plans for the revised bill are yet to be finalized. Thus, the policy could either be amended or be completely thrown away if it is not accepted.

Most Countries Treat Cryptocurrency Returns as Capital Gains

Most countries are yet to have a clear regulation for the cryptocurrency sector, which makes it tough to determine the proper taxation policy on crypto returns. However, most governments around the world, especially in developed economies, treat cryptocurrency returns as a form of capital gains. This means it is a tax levied on the difference between the selling price and the purchase price and it happens when the former surpasses the latter.

In the United States, the IRS issued a circular in October last year, confirming that cryptocurrencies are regarded as a form of property, even when they are received as income. Based on an individual’s income bracket, the taxes can surpass 39% if the virtual currencies are held for less than a year.

Meanwhile, Bitcoin and other digital currencies are classified as commodities in the UK. Cryptocurrency holders in the UK pay a 20% tax on disposals that altogether surpass £12,000 in a tax year.

However, South Korea’s reported move would make it similar to Japan, which currently regards cryptocurrency earnings are miscellaneous income. The tax on cryptocurrency income in Japan is as high as 55%, which is higher than the 20% they currently have for trading stocks.