Repeated Delays to Crypto Tax Risk Undermining Tax Fairness, Policy Credibility

Repeated delays to the taxation of virtual assets, or cryptocurrencies, could undermine tax fairness and confidence in policy, a speaker at a National Assembly seminar said.

Speaking at the seminar, "2027 Virtual Asset Tax Delay: When Should It Take Effect?," held at the National Assembly Members' Office Building in Seoul's Yeouido district on October 30, Kim Hyun-dong, a professor at Pai Chai University, made the case during a discussion titled "A Critique of Deferring Virtual Asset Taxation Based on Tax Principles."

Kim said the most important standards in the debate over crypto taxation are tax equity and tax justice. "Arguing that crypto should not be taxed because other forms of income are not taxed only leads to a parallel debate," he said. "When views conflict, the judgment should be based on tax principles."

He also criticized the National Assembly over repeated postponements. "The Assembly has exercised its legislative authority, but has not fully met its responsibility to check whether the executive branch is prepared," Kim said. "It should have reviewed the state of tax preparations in advance through parliamentary audits and investigations." He cited the case of the financial investment income tax, which was abolished after repeated delays, and said he was concerned crypto taxation could follow the same path.

Kim also pushed back on the argument that tax infrastructure must be fully in place before taxation begins. The US and Japan tax related income even before the Crypto-Asset Reporting Framework, or CARF, takes effect, he said. South Korea also introduced capital gains taxation on overseas stocks before a cross-border financial account information-sharing system was fully established, he added.

He also rejected the view that enactment of a Digital Asset Basic Act must come before taxation can begin. "The Digital Asset Basic Act is legislation governing business operators' obligations and investor protection, so its purpose differs from tax law," Kim said. "The need for a basic law and the question of whether to tax virtual asset income should be judged separately." He added that new income types such as staking and airdrops could be taxed under the existing framework for miscellaneous income and related subordinate regulations.

Still, Kim said it was a problem that the National Tax Service, South Korea's tax agency, has yet to disclose a formal notice laying out the taxation standard. "Taxes have to be calculated accurately, and discussion has limits when a detailed notice has not been released," he said. "The National Tax Service and relevant ministries need to directly explain how tax preparations are progressing." Once the standards are spelled out, authorities should also consider reflecting the key points in an enforcement decree or in statute, he added.

Over the longer term, Kim said South Korea needs to overhaul the income tax system itself. "If taxable items are added each time a new form of income appears, the debate will inevitably be repeated," he said. "We need to review a shift to an income tax system based on the net asset increase theory, which taxes economic gains broadly."