South Korea might be changing its stance regarding taxing cryptocurrency trading profits. Just weeks after the government said that they wouldn’t tax any profits made from digital assets, a new report indicates otherwise. The country could purportedly classify crypto gains in the same category as lottery winnings and thus tax them with 20%.
At the start of 2020, the Ministry of Finance and Strategy said that the current tax law does not consider cryptocurrency trading profits as taxable income. Therefore, traders within the country wouldn’t have to pay taxes on anything they earn in this way.
However, new information came out today from the Asian country that could lead to the opposite. According to the report, the government has started reviewing a way to implement taxation on gains from crypto trading.
So far, profiting from digital assets is considered as capital gains. It’s under the charge of the property tax department, which inspected taxes on gifts and gains. If the change is applied, profits from cryptocurrencies could be classified as other income, which would ultimately lead to a 20% tax on any gains.
Local laws indicate that “other incomes” include honorarium income and prize winnings such as the lottery.
Speaking on the matter was a government official who reportedly considers such a change plausible but is not confirmed yet:
“The Finance Ministry is yet to finalize its direction, but it surely has become more likely for the income from virtual asset trading to be labeled as other income, not as gains from transfer of capitals like real estate properties.”
The National Tax Service (NTS) has already begun taxing cryptocurrency-related businesses as of late 2019. Bithumb, the largest Korean crypto exchange, received a hefty $70 M withholding (retention) tax on its foreign customers. This was the first time when the Korean government taxed digital asset transactions.
The popular exchange quickly responded by filing a complaint with the country’s Tax Tribunal to dispute it. One of Bithumb’s main arguments is that cryptocurrencies are not yet legally recognized currencies in Korea. This statement was confirmed by several local experts claiming that it should exclude them from taxation.
Nevertheless, if the government successfully classifies cryptocurrencies as “other income,” it would immediately mean that they will be a subject of legal taxation.