South Korea’s major opposition party, the Democratic Party of Korea (KDP), has agreed to the government’s proposal to delay implementing taxes on crypto assets for two years. Floor leader, Rep. Park Chan-dae, disclosed the postponement agreement in a press conference.
The decision marks a turnaround, given that the party had earlier kicked against the moratorium, calling for the immediate implementation of the tax as planned. However, the KDP has now changed its tune, making it more likely that the moratorium will now be implemented.
The tax regime that would have imposed a 20% tax on virtual assets’ capital gains was meant to become effective by January 2025.
Park Chan-dae said:
“We have decided to agree to a two-year moratorium on the implementation of cryptocurrency taxation proposed by the government and ruling party.”
With this agreement, one of the key tax issues that has caused disagreements between the ruling People Power Party (PPP) and the opposition KDP has now been resolved. The disagreements had earlier led to the failure to convene the plenary session for the National Assembly’s Strategy and Finance Committee.
South Korean crypto tax regime delayed for the third time
With the KDP now agreeing to the moratorium, the virtual asset tax regime will likely not go into effect until 2027. This aligns with the government’s desire, although it falls short of the ruling PPP’s request for a grace period of 3 years.
This latest delay means that the tax has been postponed three times since 2021 and will not be implemented for at least six years since it was first considered. In 2021, the government attempted to implement crypto taxes, but disagreements with opposition parties pushed the discussion until 2023.
The delays are a welcome development for crypto investors and highlight the South Korean government’s pro-crypto approach. The ruling party insisted on the delay because it believed that a quick implementation of crypto taxes could harm the country and force investors to flee.
South Korea is the leading country in crypto adoption in East Asia, ranking 19th globally in grassroots adoption, according to Chainalysis. It is also the largest in cryptocurrency value received, with $130 billion, and its transaction share continues to rise.
Other tax issues remain unresolved
Meanwhile, there are still pending issues that might delay the implementation of the tax amendments. The KPD chair, Rep. Lee Jae-Myung, said his party will oppose the government’s proposal to reduce the inheritance and gift tax rate to 40% while increasing child deduction for inheritance tax from 50 million won to 500 million won.
However, the KDP has agreed to several other amendments, including scrapping financial investment income tax. The government has sought to remove the tax on stock dividends for investors, but the KPD initially opposed the bill before eventually agreeing to it last month.
At the time, the KDP chair said he could not continue to ignore the 15 million investors who were against the tax, given the difficult stock market. The South Korean stock market and its currency have been among the worst performers this year. Only the Japanese yen performed worse than the Korean won among the 40 major economies.
Still, it remains to be seen whether the KDP’s proposal to increase the threshold for crypto capital gains tax from 2.5 million won ($1,800) to 50 million won ($36,000) will be retained.
The KDP proposed a time when it was opposing the moratorium and argued that implementing that effectively abolishes crypto tax because it only means that only the major investors and not the small low-income investors will pay taxes on their crypto gains.
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