South Korea’s ruling party is at loggerheads over the thorny issue of crypto tax. The government could even face a backbench revolt as parts of the party want to delay or amend incoming tax laws.
As previously reported, the National Assembly has already green-lighted a change to the existing tax code, which will see a flat rate of 20% tax levied on crypto tax profits of over USD 2,100 a year. If unamended, this change will come into force on January 1, 2022.
But the ruling Democratic Party is wary of a backlash from angry voters aged 20-39 – the backbone of the party’s support – during next year’s presidential elections. Crypto adoption among younger South Koreans has boomed this year, with some stating that buying tokens is “no longer optional” for those who cannot afford to buy real estate.
The matter has been compounded by the fact that some traders claim the move is discriminatory – with stock market traders investing in KOSDAQ shares allowed to stick with a USD 42,000 threshold.
The Democratic Party’s internal crypto task force has leaped into action, as have members of the party opposed to the President Moon Jae-in administration – resulting in ugly squabbles in parliament.
When challenged on the matter, the nation’s finance minister Hong Nam-ki stated, per Joongang Ilbo, that he was not minded to allow any delay, noting:
“The size of the [domestic] cryptocurrency market has grown to rival the size of the Korea Composite Stock Price Index (KOSPI). The issue of tax equity is too serious to ignore.”
Hong has been seen as the man with the final word on all things crypto-related. But with Moon obliged to step down at the next election and the Democrats on the ropes in opinion polls, that is likely to change in spring next year.
And Asia Kyungjae reported that at least one prominent member of the party openly defied Hong in the National Assembly. Noh Woong-rae, the MP for the wealthy Seoul district of Mapo and a long-time critic of Moon and his administration on crypto-related matters, was quoted as stating:
“The issue of whether a suspension of taxation on cryptocurrency should be issued or not should be decided by [paliament], not by the finance ministry.”
And in a further sign of possible disunity, Newsis reported that Hong claimed he had heard “nothing” of his own party’s task force’s plans to hold “discussions” on a possible bill to delay the tax by a year.
The task force’s head, the MP Yoo Dong-su, had previously called for “discussions” on a possible delay.
Meanwhile, a looming crypto exchange mass shutdown is set to become a stark reality next week, with more exchanges backing out of South Korea out of fear of regulatory reprisals.
As of September 24, all exchanges in the country will need to apply for regulatory permission to continue trading. If they want to enable fiat KRW trading, they will need to obtain real-name banking contracts – something domestic financial providers are loathed to do.
Thus far only four exchanges – the “big four” of Upbit, Bithumb, Korbit, and Coinone – have struck banking partnership deals, with a small band of others still locked in “talks” with possible partners.
But with time running out, platforms are still on course to fold or suspend their services en masse next week.
A number of domestic platforms – including many larger operators – have already announced they will stop KRW trading. And after Binance earlier backed away from directly targeting South Koreans, the Singapore-based exchange Bybit has followed suit.
The firm said it would “discontinue” both “Korean language support on Bybit’s official platforms” and its “official Korean community on social media.”
A Reuters report on the matter drew attention from international crypto community members.
Reactions such as these will be little comfort, however, for the thousands of South Koreans whose fiat and crypto are tied up on exchanges that now look almost certain to close their doors next Friday – with warnings of “planned bankruptcies” and embezzlements growing increasingly loud.