South Korea will begin taxing the profits of Bitcoin (BTC) and other cryptocurrencies next year, according to local media reports
Taxation will also apply to Bitcoin mining operations and revenue from initial coin offers (ICO), if approved by Parliament.
South Korea’s Ministry of Economy and Finance has proposed amendments to the existing tax law to include the cryptocurrency sector, with support from the Ministry of Information and Technology.
In September, the Ministry will present the amendments to Parliament. Once passed, the law will go into effect in 2021, allowing authorities to tax the profits generated by the sale of digital assets for cash. Cryptocurrency trading will remain tax-free and, likewise, those sold at a loss.
“We are looking at capital gains tax or other income tax on profits made by domestic and foreign investors in the transfer of virtual assets,” said an official at the Ministry of Strategy and Finance.
“The proposed tax amendment will be announced in July and submitted to the general meeting in September,” added the official. The planned changes were motivated by the idea of applying “tax where income is located,” officials said.
The Korean government has tried to tax Bitcoin in the past, most recently in January, but has failed to enforce regulations, allegedly because different government ministries have failed to agree whether Bitcoin was an asset or not. Local cryptocurrency experts believe that the proposed amendments will suffer the same fate.
Seung Seung-young, a researcher at the Regional Tax Institute of Korea, told the local newspaper E Daily that the planned law is not waterproof in its current format, opening it up for exploration by investors. He said:
“If you do business through a point-to-point transaction without going through an exchange, there is a possibility to avoid taxes. Even with IP tracking, if there are a large number of goals, administrative costs will increase and it will be difficult to track every day. “
Kim Yong-min, president of the Korea Blockchain Association, notes that it will take three to four years for the government to set up an infrastructure that truly understands cryptocurrencies.