Trade Cryptos? Pay Taxes!

Cryptocurrency traders and investors in South Korea will have to pay a 22% on their trades even if they trade at a net loss if a proposal from the government is passed. The change comes as a result of a shift in the Ministry of Strategy and Finance, which has overseen tax rules regarding cryptocurrency up to this point, to handle income tax issues instead of property tax issues.

Officials from the government and the industry met today to discuss the reorganization of the tax scheme in regard to cryptocurrency and others. The meeting came at a time when the courts have been debating the constitutionality of current slapdash regulations on cryptos.

The income tax scheme in South Korea deals with labor, business, and ‘other income.’ In this case if the Ministry of Finance and Strategy is now handling income tax issues, and they are also charged with taxing crytocurrency, then cryptos will be listed as ‘other income’ under the income tax scheme, and be subject to a 22% tax.

The tax amount comes from 20% as income tax, and 2% resident tax.

The most problematic part about the new proposal is that crypto trades can be taxed in full even if the trades are made at a net loss. The tax amount is calculated by the initial amount of the position taken up. It should be noted that this new proposal flies in the face of a recent review by Korean officials wherein they ruled that cryptocurrency could not incur income tax.

The tax service in Korea had already classified cryptocurrency income as ‘other income’ for foreign traders on cryptocurrency exchanges, such as Bithumb, in the last five years. From that classification, they imposed a hefty tax bill on Bithumb which was calculated by placing a 22% tax on the total amount of trades by volume, regardless of net loss or profit.

Naturally, the industry is strongly opposed to the move, with one long-term investor considering it the “worst proposal” possible and others are simply in shock, wondering “isn’t this the craziest thing you’ve ever heard?”

Investors lament a number of confounding factors, such as the ongoing housing bubble, that they feel are conspiring against individuals, making them worry about their country’s future.

It is also expected that the OTC market for cryptocurrency in Korea will see a sharp increase.

If the proposal is finalized by the appropriate bureaucratic entities involved, then the crypto trading market, which is already suffering from regular monthly average declines in trading volume, should expect an even more dramatic contraction.

One official noted, “[In 2017, the government struck traders and killed the market by basically classifying us as criminals.]” Three years later, with no meaningful legislation made on cryptocurrencies or the infrastructure, it is a further insult to tax trades so high.

Investors who hold a large amount of capital in cryptocurrency are expected to leave South Korea before the taxes are implemented in an attempt to salvage their bottom line. With crypto tax havens in desirable and easily-accessible SIngapore, Switzerland, and Germany openly inviting investors, there won’t be much question as to where the Korean investors will flee to.