South Korean authorities are preparing to formulate a legislative framework for the regulation of cryptocurrency. Although Bitcoin and other currencies are denied from being accepted as a “financial asset” or “legal tender”. However, South Korea is putting an income tax on cryptocurrency. Here is all you need to know.
Stances Of The South Korean Officials
On April 22, 2021, the head of the Financial Service Commission (FSC), Eun Sung-soo said that crypto exchanges will be “potentially shut down” in the entire country. He also stated that the financial regulatory body of the country FSC doesn’t owe any responsibility to protect the crypto investors, instead, it is their “personal responsibility” to keep their funds safe and not fall for the scams this volatile market incurs as crypto is an “inherently speculative asset”. Later on May 26, 2021, Eun seems to have changed. He states that investors will only be “provided with protection” if they carry out their trading on “exchange platforms that must get themselves registered with their financial authorities”.
Korean billionaire, Kim Jung-Ju said that “We need to establish legal mechanisms for both fostering the domestic crypto industry and protecting investors. Otherwise, South Korea will fall behind the rest of the world.” [quoted from coindesk]
A Korea Blockchain Association was formed on 26th May 2021. Its focus will purely lie in advising the financial authorities regarding regulations specific to safe crypto trading.
Crypto Fraud Increases
As cryptocurrency proliferates across the globe, both in terms of popularity and magnitude – we look deeper into scams and down points, it brings about itself. The number of victims of such scams is consecutively growing as crypto users and investors tend to grow. The police in South Korea have put fourteen individuals behind bars, who were caught in a crypto scam. In this cryptocurrency fraud case, an estimated cost of 3.85 billion USD was lost, and around 69,0000 investors suffered. The country lost over 5 billion USD over the last five years. The number of fraud cases rose from 41 to 333, from the year 2017 to 2019 respectively. The volatility of the market tends to make investors fall for greed (more returns in less time), and in this manner, individuals get away with scams. Although growth comes with an increase in adoption, bad people will find a way to corrupt and exploit the system to induce personal gains at the cost of others. For this reason, the officials face a problem to formulate regulations to avoid frauds without inhibiting the digital phenomena.
Discussions On ‘Virtual Currency’ Bill Taking Place In South Korea For The First Time
Entrepreneur and politician, Lee Yong-woo proposed a bill in the Parliament of South Korea” Virtual Asset act” on December 7, 2020. Soon after another official of the parliament, Kim Byung-Wook proposed his bill, “Act for Fostering the Virtual Asset Industry and Protecting Investors.”
Tax On Crypto Trading
According to many official statements in the parliamentary discussions of South Korea, it is looked upon that although cryptocurrencies are not a ‘legal tender in the country the huge number of investors in the country are getting away from paying tax. Hence, to avoid this the South Korean parliament is preparing to put a tax on cryptocurrency, which was hitherto not regulated. This was unfair to the “law-abiding taxpayers of the country” and to protect them there will be a procedure of investigation held to trace fraud of evading taxation, via cryptocurrency.
As a result of this, it was found out that the local exchanges of crypto were playing a part in ‘concealing assets’ by turning the wealth into crypto. These assets are now henceforth being confiscated by the South Korean police and investigating authorities. The assets will liquefy if the “habitual tax invaders” continue to escape paying their due taxes.
Post the FSC statement in May, where crypto exchanges were allotted a deadline to partner up with the financial authorities (such as private banks) of the country and establish accounts with a clear identity of the persons. Even to open an account, there are certain obligations set which are aimed to align with the anti-money laundering(AML) and Know Your Customer/Client (KYC) schemes to establish transparency and decrease financial crimes as much as possible.
South Korea has also announced that they are planning to introduce income tax on cryptocurrency from the year 2022.