South Korea's majority party is pushing for the implementation of a crypto tax law next year, why is the Democratic Party's revised version more favorable for cryptocurrency traders?

Just as we reported on the passing of Russia's cryptocurrency tax amendment, South Korea's largest opposition party, the Democratic Party, is also rumored to accelerate the implementation of cryptocurrency tax laws (South Korea's political situation is showing a trend of the opposition party gaining more power, with President Yoon Suk-yeol coming from the People Power Party, while the Democratic Party holds the majority of seats in the parliament). Originally, South Korea planned to implement the income tax law amendment passed in 2020 on January 1, 2022, but the law has been postponed twice, and is expected to be officially implemented next year. It stipulates that if annual earnings from cryptocurrency exceed 2.5 million Korean won, a separate tax of 20% plus local taxes totaling 22% will apply.

50% Tax Exemption on Exchange Gains, What Changes in the Democratic Party's Tax Law Version?

According to local media reports, the Democratic Party has confirmed that it will handle a proposal to increase the deduction for cryptocurrency taxation to 50 million Korean won at the finance committee meeting on the 26th. However, due to increasing opposition from investors within the party, some have urged the government and the ruling party to postpone the cryptocurrency tax bill for the third time. Nevertheless, the Democratic Party ultimately decided to proceed with the implementation of the bill.

In the income tax amendment proposed by Democratic Party member Jung Tae-ho last month, the deduction threshold was revised from below 2.5 million won to below 50 million won. It has recently been confirmed that the Democratic Party has decided to push for the 50 million won deduction threshold version. Additionally, the amendment also includes a provision that if taxpayers have difficulty determining the actual cost price of cryptocurrency, a certain percentage of the transaction amount, up to a maximum of 50%, can be used as a substitute. This means that half of the trading income can be tax-exempt, and this provision has now been included in the government's proposal.

Democratic Party: Increasing Deduction Threshold Equivalent to Tax Exemption for Retail Investors, Cryptocurrency Tax Law Becomes Political Maneuvering

Reports indicate that the Democratic Party plans to vote on the tax subcommittee of the finance committee on the 25th and pass the amendment at the full meeting on the 26th. Mentioning this amendment inevitably brings up the previous move by the Democratic Party to cooperate with the government in abolishing the capital gains tax on financial investments, known as the "capital investment tax."

However, while the Democratic Party is abolishing the capital investment tax, it is still accelerating cryptocurrency taxation, which may provoke opposition from investors. Nevertheless, the Democratic Party believes that expanding the deduction threshold is essentially equivalent to exempting taxes, as investors with annual earnings exceeding 50 million Korean won are a minority, resulting in minimal tax effects.

Officials from the finance committee explained, "Setting the deduction threshold at 50 million Korean won, calculated with a 5% return rate, the investment amount needs to exceed 1 billion Korean won. As a result, the majority of investors will no longer fall within the taxable range, with only a few major investors affected."

The top 1% of accounts in South Korea hold 70% of the market's total investment, revealing the mystery behind the high premium on kimchi.

The Democratic Party has stated its commitment to reaching a consensus with the ruling party. However, if the ruling party insists on advancing the government's proposal, the Democratic Party will take a tough stance and push for the original bill's implementation. Similar to the controversy surrounding the capital investment tax, the issue of cryptocurrency taxation has become a battleground for the two parties. A Democratic Party official commented, "If an agreement cannot be reached at the committee stage, under the nature of tax laws as subsidiary budget bills, it will be automatically submitted to the full meeting on the 2nd of next month, at which point the Democratic Party can veto the bill and push for the implementation of the old law."