Debate on Cryptocurrency Taxation at National Assembly Audit: Ruling Party Calls for Delay, Opposition Insists on Implementation

Tax Exemption for Overseas Futures and Lack of Loss Carryover Deduction... The People Power Party Points Out Tax Equity Issues

The National Tax Service stated, "Income from digital assets is taxed based on whether it falls under transfer or lending."

Delays in Exchange System Construction and Controversy Over November Pilot Operation... Calls for Additional Delay

[Block Media Reporter Oh Soo-hwan] With the implementation of digital asset (virtual asset) taxation approaching in January next year, the positions of the ruling and opposition parties diverged on the need for an additional delay. The People Power Party demanded a delay, citing issues of tax equity between overseas derivatives and domestic spot trading, as well as deficiencies in the exchange systems. The Democratic Party acknowledged concerns about the government's preparation but maintained that taxation is necessary.

During the National Assembly's audit of the Ministry of Economy and Finance on the 13th, People Power Party lawmakers Park Soo-young, Lim Lee-ja, and Kim Sang-hoon questioned National Tax Service Commissioner Lim Kwang-hyun about the preparation for digital asset taxation and the necessity of its implementation. They raised concerns about the unclear scope and criteria for taxation, as well as the inadequacy of the exchange's IT systems and the acquisition of overseas trading information.

First, the issue of equity was raised. Current regulations tax income generated from the transfer and lending of digital assets, but income from indefinite futures trading on overseas exchanges is excluded from taxation.
People Power Party lawmaker Lim Lee-ja (left) questions National Tax Service Commissioner Lim Kwang-hyun about the preparation for digital asset taxation and the need for an additional delay during the National Assembly's audit on the 13th. Photo = YouTube Capture

When Lim asked about the taxation of income from indefinite overseas futures trading, Commissioner Lim replied, "It is tax-exempt." Lim then pointed out, "If overseas indefinite futures investments are tax-exempt, citizens who faithfully pay taxes at domestic exchanges are at a disadvantage. Is this really in line with tax equity?"
People Power Party lawmaker Kim Sang-hoon. Photo = Block Media

Kim raised concerns about the difference in tax burdens between stock investors. He questioned whether it is appropriate to apply a basic deduction of 2.5 million won for digital asset investments when the financial investment income tax has been abolished. He noted, "When the financial investment tax was discussed, the deduction amount for stocks and funds was 50 million won, but the basic deduction for digital asset taxation is only 2.5 million won," suggesting that young and individual investors may be disadvantaged.

He also pointed out the absence of loss carryover deductions. Kim explained that if one loses 5 million won in the previous year and earns 10 million won this year, the actual accumulated profit is 5 million won, yet tax is imposed on the entire 10 million won profit this year. He demanded system improvements, stating, "While advanced countries allow loss carryover deductions, our country does not."

In response, Ko Young-il, head of the National Tax Service's Individual Tax Division, stated, "Loss carryover and basic deductions are institutional issues, so it is difficult for the enforcement agency to comment on them."

The taxation criteria for various trading methods such as staking, airdrops, hard forks, and decentralized finance (DeFi) also became contentious.

Lawmaker Lim criticized, "Are you prepared to determine when and what income is realized, how to assess the valuation and necessary expenses?" He pointed out the lack of detailed criteria for different types of transactions.

Regarding lending transactions, he noted, "There is a definition for transfer, but there is no definition for lending," emphasizing the need to clarify the criteria for distinguishing between interest compensation and principal return, as well as the differences with DeFi transactions.

Commissioner Ko stated, "Income generated from digital assets that falls under transfer and lending is taxed as other income, so it is necessary to determine whether it is a transfer or lending." However, he added, "In the initial phase of implementation, there may be considerable confusion among taxpayers," stressing the need to focus on how to provide careful guidance.

The IT systems of exchanges that need to produce tax data have not been completed.

According to the data received by lawmaker Park, Upbit has begun preparations for construction, but Bithumb has not yet started development. Coinone stated that it would hold off on construction until relevant tax laws are passed, and other exchanges have only reached the level of functional verification or initial design review.
People Power Party lawmaker Park Soo-young. A seminar calling for a delay in virtual asset taxation held in July. Photo = Block Media

Lawmaker Park pointed out, "By now, the system should be fully constructed and in a testing phase," questioning, "With exchanges in this state, when will they develop and create data for those trading from January 1 next year?"

The differing tax criteria among exchanges were also highlighted as a problem. Lawmaker Park conveyed concerns from exchanges that errors could occur in the process of withholding tax for non-residents and preparing tax return documents for residents, and that unclear criteria could lead to large-scale correction filings. He demanded that the National Tax Service provide clear guidelines before implementation, stating, "The lack of precise criteria from the National Tax Service has resulted in inconsistent tax criteria among exchanges."

The effectiveness of the pilot operation of the tax IT system scheduled for November was also questioned. Lawmaker Lim remarked, "You are currently building an integrated system, and you plan to conduct a pilot operation in November, right? But there has been no data coming in from domestic exchanges, has there?" He questioned whether the system could be properly verified without exchange data.

The acquisition of overseas trading information was also identified as an unresolved issue. Even if the OECD's Common Reporting Framework (CARF) for digital assets is implemented, the timing of participation by major countries varies, making it difficult to track transactions through overseas exchanges or personal wallets.

Lawmaker Park asked, "The U.S. has stated it will exchange information in 2029, but what will happen if assets move to the U.S. in the meantime?" Lawmaker Kim also expressed concern that it would be difficult to ascertain acquisition costs and trading details for overseas exchanges, personal wallets, DeFi, and peer-to-peer transactions, which could ultimately burden domestic exchange users with the tax load.

Commissioner Lim acknowledged the limitations in tracking some transactions. He stated, "Digital assets are such a new area that it is a challenge not only for us but for tax authorities worldwide," adding, "Once CARF is implemented, more advanced data exchanges will occur than now." He also mentioned that other countries that have already implemented taxation are facing difficulties in capturing transactions that are not detected, such as wallet-to-wallet transactions, and that discussions on how to identify these transactions and strengthen international cooperation are ongoing in meetings of tax commissioners.

Lawmaker Kim pressured the National Tax Service to honestly disclose the preparation status. He stated, "If the National Tax Service claims that there are no issues and that preparations are going well, then it must take responsibility for any problems that arise after implementation."

Commissioner Lim responded, "You are correct in all the points you raised," and added, "Even if taxation is decided for next year, digital assets are still in their early stages and there are many unavoidable limitations, so it cannot be done perfectly." He continued, "We will prepare to ensure that there are no disruptions in cooperation with digital asset exchanges within the current system."

Lawmaker Kim emphasized, "It should be easy to capture tax sources, and the tax base and taxable subjects must be clear," warning that the logic of "it is time to implement it since it has been delayed several times" is very dangerous.

On the other hand, the Democratic Party expressed the position that digital asset taxation should be implemented since it has already been delayed three times. Lawmaker Jeong Tae-ho stated, "There is a clear justification for taxation since digital asset taxation has been delayed three times since its introduction." However, he also mentioned concerns about whether the government is adequately prepared for taxation.

The National Tax Service maintains that it will prepare for taxation as scheduled unless the National Assembly decides to delay it. Commissioner Lim stated, "As it is currently decided to impose taxes, the National Tax Service must thoroughly prepare for the case of taxation, and fulfilling that role is the mission of the National Tax Service."