South Korea is set to introduce a tax on digital currency transactions by 2022, confirming the date for legal effect of the new measures agreed by the government.
Qualifying transactions will be subject to a tax rate of 20%, according to the Ministry of Economy and Finance, which drew up an amendment following a change in the rules in 2020, according to reports.
As per a recently published legislative notice, the amendment is still to be agreed by vice ministers and the cabinet, but is expected to be signed off into law by the end of the month.
The tax applies only to transactions with profits of over 50 million won, roughly equivalent to US$45,685. The rate of tax increases to 25% for profits of 300 million won (US$273,950) or more.
The tax plans were originally slated to come into force in the fourth quarter of 2021, with October previously mooted as a date for implementation. However, plans have now been pushed back to January 2022, following concerns from cryptocurrency exchanges.
Exchanges had flagged the original timeline as too ambitious, asking the government for more time to implement the technical infrastructure required to apply the tax charges.
The new timeframe for launch is designed to allow flexibility for digital currency exchanges to meet their new compliance obligations before they come into force.
The digital currency tax looks set to hit at a time of increased interest in digital currencies and other digital assets in South Korea. Traditionally a forward thinking market for digital currencies, consumer use of digital currency and exchanges is already high by international standards, with the sector continuing to grow amid rallies in digital currency pricing.
While the tax will likely distort decision making for investors in digital currency, it is expected to raise significant money for state coffers, while normalizing tax treatment in line with other tradable assets.