With the advent of technologies, more and more people started to talk about digital or virtual currency. Its most recognizable feature is that it is almost impossible to counterfeit. Although it is still not recognized as an official currency, Bitcoin and other cryptocurrencies are taxable. South Korea announced its plans to tax the use of Bitcoin after the cryptocurrency’s trading volume surpassed that of the Kosdaq stock exchange. The Commissioner of the Country’s National Tax Service Han Seung-hee disclosed that his department is currently discussing various ways to tax the cryptocurrencies in the most efficient and adequate way.
On 13th October, South Korea’s legislators held a National Tax Service (NTS) hearing in Sejong. The topics discussed included the taxation of the cryptocurrencies, capital gains tax, the VAT, and gift tax. In an interview with Business Post, the NTS Commissioner Han Seung-hee explained that his department is still on the fence whether to tax the value-added tax (VAT) or capital gains tax (a tax imposed on the capital gains). In fact, VAT appears to be a serious consideration for those, who are using the cryptocurrencies. For some, Bitcoin and other cryptocurrencies are a form of currency, while for others cryptocurrencies are assets.
As for South Korea, the Commissioner made it clear that the country considers Bitcoin and any other cryptocurrencies as “general assets”. The Commissioner pointed out the U.S. and Japan as role models and their example is worth the attention. Both countries taxed the use of cryptocurrencies, classifying them as assets. Apart from this, the Commissioner said that the so-called “gift tax” is also to be put on the table. To make it clearer, “gift tax” is a federal tax imposed on anything of certain value, which one person gives to another.
South Korea’s Previous Attempts to Build Legal Bitcoin-Oriented Framework
In fact, South Korea has started to craft a legislative framework regarding the digital currency in August this year. A bill, aiming at establishing certain rules for the use digital currencies was introduced by Representative Park Yong-jin of the ruling Democratic Party of Korea. The legislative piece faded as a voice in the wilderness as the officials did not take any further actions to amend it if needed and pass it. In September, the legislators came up with another decision regarding the digital currencies, and that is to introduce stricter verification measures. The Ministry of Science and ICT and Korea Communications Commission stated that it is to inspect the provision of such cryptocurrency services. At the end of the month, the lawmakers discussed to strengthen the regulation of digital currencies to protect consumers’ best interests.
In July this year, South Korea regulated the use of digital currencies as an attempt to weed out illicit practices and protect consumers’ interests. However, the country’s Bitcoin market is not fully regulated yet, meaning that South Korea legalized Bitcoin service providers to support trades and payment methods. Currently, the country is on the brink of introducing a legal framework for the exchange of the digital currencies, including buying and selling it for cash.