Virtual asset taxation to be postponed by 2027

The ruling and opposition parties have agreed to postpone the taxation of virtual asset investment income, initially set to take effect in January 2025, for an additional two years. This decision follows the earlier abolition of the financial investment income tax, aiming to address backlash from individual investors, particularly the younger generation. However, with significant tax revenue shortfalls over the past two years, the fundamental taxation principle that “income should be taxed” is being repeatedly undermined.

The proposed virtual asset tax involves a 22% levy on annual investment profits exceeding 2.5 million won. Although the revised Income Tax Act, passed in 2020, slated its implementation for 2022, it has already been delayed twice, amounting to a three-year postponement. Just before its scheduled enforcement on January 1, the government and the ruling People Power Party have proposed deferring the implementation to 2027. The Democratic Party of Korea, despite previously supporting a higher deduction limit, has also agreed to this delay.

The rationale for postponement centers on the need for additional institutional measures. Authorities argue that, unlike domestic exchanges, investments on overseas platforms like Binance are difficult to track, raising concerns about tax fairness. Critics, however, highlight the government and National Assembly's failure to adequately prepare during the initial grace period.

Major countries such as the United States, United Kingdom, Germany, and Japan have already implemented taxation on virtual asset income, even in the face of challenges identifying overseas investments. The Korea Institute of Public Finance has remarked that “postponing taxation due to inadequate infrastructure is unusual compared to global practices.” Critics accuse political leaders of delaying taxation to win favor with approximately 8 million domestic coin investors.

Adding urgency to the issue, the coin market has shown signs of overheating, partly driven by U.S. President-elect Donald Trump, who is seen as favorable toward virtual assets. With domestic coin trading volumes exceeding those of KOSPI and KOSDAQ, concerns are mounting that these repeated delays could exacerbate speculative, debt-fueled investments. To prevent further stalemates, it is essential to swiftly establish robust laws, systems, and infrastructure, ensuring tax policy reliability and sustainability.