South Korea to Address Income Inequality Partly With Crypto Taxes
South Korea’s new crypto exchange regulation will increase pressure on crypto exchanges, by requiring them to register with the Financial Intelligence Unit and secure partnerships with banks by September 24. The country is also set to revise tax codes on cryptocurrency investors, as part of a crackdown on tax evasion and increasing taxes on high-income earners. Higher taxes on the wealthy is a trend that has also been proposed in the US, with President Biden’s recent announcement.
South Korea Tightens Regulations on Crypto Exchanges
As part of new regulations that will come into force next week, South Korean crypto exchanges are obliged to register with the country’s Financial Intelligence Unit. Exchanges that fail to register are being told to halt their services by September 24.
The country also requires exchanges to partner with banks if they plan to allow trading in South Korean won — which is part of the country’s attempt to enforce KYC verification for crypto holders.
Earlier this week, the Financial Services Commission (FSC) asked exchanges to notify their customers of a full or partial suspension of trading by September 17, giving Koren exchanges one week before the new law goes into effect. A representative of the FSC said that:
“Should some or all services need to be closed, (exchanges) should notify customers of the expected closing date and procedures to withdraw money by at least seven days before the closure. This should be completed no later than Sept. 17.”
Nevertheless, the mass majority of exchanges in the country have not registered, which leaves them with no other choice than to halt services. Reportedly, around 40 out of 72 crypto exchanges in South Korea are slated to suspend all services by September 24.
Another 28 exchanges have registered with the Financial Intelligence Unit but have not secured partnerships with banks. This means they can continue to operate but need to suspend all trading that involves the country’s official currency.
Only four exchanges have both registered and secured partnerships. These exchanges, which include Upbit, Bithumb, Coinone, and Korbit, will be allowed to resume all their services. It is worth mentioning that smaller exchanges like ProBit, Cashierest, and Flybit have said they will stop trading won until they secure a partnership with a bank.
South Korea Postpones Crypto Taxation Policy
In late July, South Korea, one of the world’s largest digital currency markets, revealed plans to amend tax laws and clamp down on tax evasion by crypto investors and high-income earners. As per the proposal, the country aims to revise tax codes so that authorities will be able to seize crypto assets held by tax dodgers, even if they are stored in digital wallets.
Reportedly, the amendments in tax codes are necessary as the current rules don’t authorize officials to confiscate digital assets held in a cold wallet.
President Moon Jae-in claims they have been hiking taxes from high-income earners to help the government cover rising welfare costs and make sure wealthy citizens fund the growing costs of an aging population. South Korea took first place last year to become the world’s fastest-aging population, with the lowest birth rate anywhere in the world.
Initially, South Korea announced it would impose a 20% tax on digital asset gains over $2,300, beginning on January 1, 2022. However, local media now report the country aims to postpone this policy to January 1, 2023.
Part of the reason is a lack of proper infrastructure, which fails to ensure the policy will be a success. Noh Woong-rae, a South Korean lawmaker and member of the country’s Democratic Party, has been critical of the proposal, saying that said:
“The Ministry of Finance’s policy of enforcing taxation over digital asset endeavors wouldn’t work as planned. It is difficult to secure the proper taxing of overseas operations with cryptocurrencies or peer-to-peer (P2P) transactions.”
Arguably, as the mass majority of crypto exchanges in South Korea are poised to suspend their services next week, the job for the country’s taxation body will likely become much easier with fewer exchanges to chase up for regulatory compliance.
What do you think about South Korea’s policy of hiking taxes from high-income earners? Let us know in the comments below.