Crypto tax
Korea to Start Taxing Crypto Gifts and Inheritances in 2022
Finance Committee Approves Legislation Delaying Crypto Tax in South Korea
Changes meant to postpone the introduction of a tax on virtual assets such as cryptocurrencies in South Korea have been approved by an important parliamentary committee. The draft legislation seeks to delay Seoul’s plan to impose a 20-percent levy on gains from crypto transactions. Ahead of Election, Major Parties Support Tax Break for Crypto Investors […]South Korean lawmakers inch closer to deal to delay crypto tax by one year
The long debate in the country’s legislature could soon be over meaning cryptocurrency gains made in South Korea may not be considered taxable events until 2023 at the earliest.
In what could be a big win for the local crypto industry, South Korean lawmakers are close to delaying taxation on digital assets for another year.
Representatives from the Tax Subcommittee in the National Assembly, South Korea’s legislative body, reached a bipartisan agreement on Nov. 29 by approving an amendment that could postpone the crypto tax by one year. If the amendment passes in a parliamentary session on Dec. 2, taxation will begin on January 1, 2023, not 2022 as previously planned.
Democratic Party lawmakers who have been pushing for this delay decried flaws in the information gathering procedures that would be implemented by the National Tax Service (NTS).
One such procedure would be to assume a 0 KRW ($0) cost basis for crypto assets that have been dormant on private wallets where the acquisition price could not be proven. This would create a significant tax burden for long-term holders who have been holding coins on private wallets before the tax legislation comes into effect. They would be effectively taxed on the full asset price, not just the gains made.
Representative Kim Young-jin, Chairman of the Tax Subcommittee, also pointed out the problem of demanding that citizens pay taxes on cryptocurrencies while the government has yet to adopt an official definition of what a cryptocurrency or virtual asset is.
“There is an inconsistent system for imposing taxes without a clear basis on how to legally define cryptocurrencies in our system… but only in Korea does taxation come before regulation.”
Proponents of tax implementation, most notably Finance Minister Hong Nam-ki, feel that the tax system should be equitable so that those who make gains on cryptocurrency trading contribute their fair share.
Over the past few months, Minister Hong has repeatedly shot down debate on the crypto tax topic in open session at the National Assembly.
Related: South Korea’s leading blockchain facing greater competition in NFT market
The year-long battle over the status of the tax delay has led to misinformation and confusion among both citizens and lawmakers. Conflicting news reports about the tax have been issued periodically throughout 2021.
Most recently on Nov. 23, the Financial Services Commission (FSC) flip-flopped on their opinion that NFTs would not be taxable, and stated that they were working toward considering them the same as tradable cryptos.
UK digital services tax targets crypto exchanges
Britain’s crypto exchanges will be levied with a 2% tax which is likely to be passed on to investors warned CryptoUK.
A recent update to Her Majesty’s Revenue and Customs (HMRC) regulations has introduced a digital services tax that will be levied on cryptocurrency exchanges operating in the United Kingdom.
Crypto exchanges in the UK will now have to pay a 2% digital services tax according to a Telegraph report. Britain’s tax authority, HMRC, does not recognize digital assets as financial instruments and therefore exchanges are not eligible for financial exemptions.
On Nov. 28, the authority included cryptocurrency exchanges under the Treasury’s tech tax. The digital services tax on revenue was introduced in April 2020 targeting social media and search giants such as Facebook and Google.
The latest blow to crypto exchanges is a result of the HMRC’s classification of crypto assets, as the regulator explained:
“There are a wide variety of crypto assets, each with different characteristics. It said that because cryptocurrencies do not represent commodities, financial contracts, or money, it is unlikely that crypto-asset exchanges can benefit from the exemption for online financial marketplaces.”
According to CryptoUK, the trade body representing the digital asset sector in Britain, the tax is unfair and is likely to be passed on to investors and traders.
Executive Director Ian Taylor stated that treating cryptocurrencies differently to other financial instruments such as stocks or commodities is detrimental to the crypto sector.
He added that it is another heavy blow to the industry following the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges. Since January, all UK-based crypto-asset companies have had to comply with AML (anti-money laundering) regulations and register with FCA.
The regulator imposed a ban on crypto derivatives in January, and in June, the FCA warned consumers against 111 crypto firms that had yet to register with it.
Related: UK revenue authority to target cryptocurrency tax evaders
In April, Cointelegraph reported that HMRC was ramping up its efforts to snare crypto tax evaders and introduced explicit demands on details of digital asset holdings on self-assessment forms.
Britain’s tax authorities reportedly demanded that several crypto asset exchanges hand over details on customers from transactions and holdings in August 2019.
Australian Tax Office says it can’t rely on crypto users’ own records
“Our main concern is that many taxpayers believe their cryptocurrency gains are tax-free or only taxable when the holdings are cashed back into Australian dollars,” said the ATO commissioner.
The Australian Tax Office (ATO) says it can’t rely on crypto investors to keep track of their crypto transactions and profits — even though most investors try their best.
Speaking at the 14th International ATAX Conference on Tax Administration conference on Nov. 23, ATO commissioner Chris Jordan stressed that many new crypto investors may not entirely understand their tax reporting obligations:
“In a sector that is growing rapidly with new investors, we can’t rely on taxpayers knowing they need to keep records of their investment income and capital gains and disclose it on their tax returns.”
“Our main concern is that many taxpayers believe their cryptocurrency gains are tax-free or only taxable when the holdings are cashed back into Australian dollars,” he added.
Jordan explained that the ATO has been working on ways to “nudge” people in the right direction such as pre-filling data on tax returns to prompt crypto users to report their investments.
The commissioner also said the ATO has ramped up its trading data matching capabilities in 2021 by sourcing information from cryptocurrency demand-side platforms (DSPs), share registries and brokers.
“We’ve expanded our data matching protocols to get more data from third parties to assist with emerging investments like cryptocurrency.”
He added that, “We are working hard to improve the way we collect, manage, share, and use data, but we are just scratching the surface.”
Related: Reserve Bank warns Aussies over punting on ‘fad driven’ cryptocurrencies
Jordan did note however that “most people do the right thing” as tax reporting compliance, or the “tax performance” of individuals and small businesses in Australia is high with “little or no intervention” from the ATO at 94% and 87% respectively.
Chainalysis down under
A firm that the ATO may call on in future is the Commonwealth Bank of Australia’s partner Chainalysis.
On Nov. 24, Chainalysis’ country manager in Australia and New Zealand Todd Lenfield told the Australian Financial Review that his firm is hoping to provide key expertise to AUSTRAC and the ATO.
“We want to have conversations with AUSTRAC about what they are looking to regulate and explain to the tax office the lessons that can be learned from what the IRS is doing. We can take experience we have got in the space, and provide a local flavor,” he said.
The firm currently provides blockchain analysis services for the U.S. Federal Bureau of Investigation and Internal Revenue Service, it also investigated Russia-based crypto business Suex OTC which was targeted by the U.S. Treasury Department in September over facilitating transactions for ransomware payments.
Mixed messages on crypto tax rules create confusion in South Korea
Government officials waffling about the crypto tax that's set to come into effect in 2022 has created a maelstrom of conflicting reports that even officials can’t seem to keep track of.
South Korean government officials have created confusion this year with conflicting announcements regarding a possible repeal or amendment of the upcoming crypto tax set to come into effect in 2022.
Throughout 2021, debate has increased in intensity in the National Assembly, South Korea’s legislature, about whether, or how, to amend the crypto tax. If unchanged, the tax will levy a 20% tax on income generated by crypto transactions in excess of 2.5 million Korean won, or about $2,100.
NFT regulations are the latest example of confusion over crypto assets in the country.
On Nov. 5, FSC officials stated definitively that NFTs would not be subject to the crypto tax based on FATF guidelines classifying NFTs differently from cryptocurrency.
But that decision was effectively reversed yesterday when FSC Vice Chairman Do Gyu-sang said:
“The Ministry of Strategy and Finance is preparing tax provisions for NFTs in accordance with the Special Reporting Act.”
The Special Reporting Act dictates regulations for cryptocurrency, including taxation.
Some are skeptical that the government has the best interests of the crypto industry in mind as the official policy direction seems to change direction so frequently. Stablenode’s Nam Doo-wan tweeted today: “Korean gov: ‘We might flip our position but you crypto heads will be slapped till that happens’”.
Since April 2021, several proposals to delay the tax from the Democratic Party, which holds a majority in the legislature, have gained momentum at the National Assembly until Finance Minister Hong Nam-ki from the opposing People’s Power Party quashed them. The same occurred in September, and will likely happen again before the year is out.
While the conflict between opposing parties is a matter of fact, there is also an element of misinformation as news outlets have reported inaccurately that the tax has been delayed. This is a source of confusion for stakeholders in Korea’s crypto industry and is exacerbated by non-Korean speaking journalists reporting on the issues.
Jun Hyuk Ahn, Head of Communications at Vegax Holdings told Cointelegraph, “With presidential elections coming up next March, the Democratic Party is trying to curry favor with the 20’s to 30’s age group by delaying the tax.”
Related: South Korea’s leading blockchain facing greater competition in NFT market
Although the FSC has shown that there is internal conflict as to how to enforce the law as it is written, Ahn pointed out that, “The power lies in the National Assembly to change the law.”
The ability to change the law has ultimately been hampered by partisan party politics in the National Assembly where The Democratic Party has had to face off against Minister Hong.
South Korean opposition set to tackle controversial crypto tax law
Opposition lawmakers are seeking a one-year delay in the enactment of the law as well as a lowering of the tax burden on crypto traders.
Lawmakers belonging to South Korea’s opposition People Power Party have prepared a fresh challenge to the planned crypto tax law.
According to The Korea Herald, opposition lawmakers are advocating for a one-year extension to the start of crypto taxation in the country.
As previously reported by Cointelegraph, South Korea’s crypto tax regime that will see the imposition of a 20% levy on cryptocurrency gains above 2.5 million Korean won ($2,100) will come into effect in 2022.
Apart from the one-year delay, the lawmakers are also pushing for a tiered tax levy for crypto that is in line with the Financial Investment Income Tax regime set to be implemented in 2023.
Under the legislative proposal, instead of the government’s 20% flat rate on profits above $2,100, the lawmakers have suggested 20% on gains between 50 and 300 million won ($42,000 to $251,000) and 25% of profits above 300 million won.
Commenting on the need to ease the burden on crypto investors, Representative Cho Myoung-hee argued that a tax regime for cryptocurrencies should be in line with the country’s financial investment income tax.
Related: South Korean lawmaker: Delaying tax laws on crypto is 'inevitable'
The People Power Party’s challenge to the crypto tax bill comes on the heels of a similar action by lawmakers belonging to the ruling Democratic Party back in September.
However, an agreement between the lawmakers and the country’s Finance Minister reportedly put paid to any plans geared towards delaying the enactment of the crypto tax law.
South Korea’s crypto tax regime is one of many strict regulations enacted by the government in recent times that could shape the country’s cryptocurrency market moving forward.
In September, the compulsory licensing requirement for South Korean crypto exchanges came into effect with several smaller platforms being forced to shut down.
South African University Professor Urges Country to ‘Finalize Cryptocurrency Policy’ — Warns Against Resisting Crypto
A professor with the University of Johannesburg, Rabelani Dagada, has urged South Africa to finalize its cryptocurrency public policy if the country still wants to become a hub for digital currency innovation. History Will Repeat Itself In an opinion published by Itweb, Dagada warned South African authorities that the continued efforts to stifle cryptocurrencies will […]South African Tax Body Updates Crypto Tax Guidance, Confusion Persists
In late August, the South African Revenue Service (SARS) released new guidelines that clarify the correct treatment of taxable crypto events. The new guidance, which was published on the revenue collector’s webpage, explains how cryptocurrency-related income should be disclosed in tax returns. Distinction Between Income and Capital Gains Tax As shown on SARS’ crypto-asset tax […]