Scrapping Investment Income Tax Should Apply to Crypto as Well, Scholar Says

Questions over tax fairness and collection infrastructure are intensifying ahead of South Korea’s planned implementation of virtual-asset taxation next year. Moving ahead with taxes only on crypto after the financial investment income tax was abolished would violate the constitutional principle of equality, a tax scholar said.

"Rationale for Repealing Investment Income Tax Also Applies to Crypto"

"Classifying It as Miscellaneous Income Is Inappropriate; Authorities Aren’t Ready"

Oh Moon-sung, chairman of the Korea Tax Policy Association and a professor at Hanyang Women’s University, made the remarks at an emergency forum on virtual-asset taxation held at the National Assembly Members’ Office Building on May 7. He identified securing tax fairness and overhauling the tax framework as prerequisites for taxing virtual assets.

For virtual-asset taxation to be rational, taxation of financial investment income must come first, Oh said. Stock investors and crypto investors do not differ fundamentally in their behavior.

Under current rules, capital gains tax on stocks applies only to major shareholders holding at least 5 billion won ($3.6 million) in a single stock. That leaves most retail stock investors effectively outside the tax net. By contrast, under current law, virtual-asset investors will be taxed from next year at 22%, including local income tax, on gains exceeding 2.5 million won ($1,810).

Stocks and virtual assets are both risky assets aimed at generating capital gains, he said. Deferring or scrapping stock taxation while imposing taxes only on crypto cannot be regarded as constitutionally acceptable differential treatment.

Oh also criticized the current income-classification system. The tax code classifies virtual-asset income as miscellaneous income. He said tax authorities had mechanically adopted an interpretation by the International Financial Reporting Standards Interpretations Committee, which treated crypto as an intangible asset as a stopgap because there was no clear accounting category for it.

He also took issue with the lack of loss carryforwards. If income is taxed where it arises, allowing losses to be deducted is a basic principle of taxation, he said. Refusing to recognize losses while collecting tax only when investors post gains is bound to trigger taxpayer resistance.

Most major countries, including the US, Germany and the UK, classify virtual assets as capital gains and allow losses to be carried forward either indefinitely or for a set period, he said. South Korea also needs to overhaul its tax regime to align with global standards.

Oh also criticized the tax authorities’ weak collection infrastructure. Under the current system, only trading records from major domestic exchanges fall within the tax net. Authorities have no clear way to track person-to-person transactions, assets moved through overseas exchanges such as Binance, or holdings transferred to private wallets, including cold wallets.

If authorities press ahead while tax fairness remains unresolved, investors could shift to overseas exchanges or opaque private transactions to avoid taxation, he said. Clear tax guidelines have also yet to be established for various forms of virtual-asset income, including Ethereum staking rewards and airdrops.

Virtual-asset taxation is far more complex than stock taxation and involves greater technical challenges, he added. Rather than rushing implementation before logical consistency, tax fairness and collection infrastructure are in place, authorities should conduct more thorough research and preparation.