In South Korea, not only postponing but also completely abolishing the tax on digital assets has moved to the center of the political agenda. The ruling People Power Party has introduced a bill to completely remove tax on crypto assets from the Income Tax Act. This change comes ahead of the implementation, which was originally planned to come into force in 2027. The opposition Democratic Party, which previously supported only postponement, is now examining the complete removal of the bill.
Capital Outflow Was the Reason for the Decision
The basis of these discussions is a large amount of capital outflow. It was determined that assets worth approximately $110 billion were moved to platforms abroad in order to avoid the planned 22 percent tax cut. In its current form, the law would impose a 22 percent tax on individual investors’ annual earnings above 2.5 million won (about $1,781). In comparison, the tax exemption limit in the local stock market is 50 million won (about $35,600). This is seen as a disproportionate practice for over six million crypto investors.
Legislative Process and Economic Impacts
The law change proposed by the People’s Power Party goes beyond the two-year postponement decision taken in December and aims to completely remove crypto assets from the scope of tax. The aim is not only to postpone, but also to radically change the structure. The amount of capital transferred to foreign exchanges caused a rapid re-evaluation of the legal and economic implications. In light of these developments, the Democratic Party, which has the majority in the South Korean Parliament, also put the option of full cancellation on the agenda.
South Korea is trying to act quickly in order to avoid a disadvantage in competing with the global digital economy. In particular, the United States has taken a more positive regulatory approach and taken steps to support the digital asset sector, causing policy makers in Korea to be more cautious in practice.
It is reported that if a regulated, tax-free transaction environment is created on platforms such as Upbit and Bithumb, which are the main exchanges used by investors, market volumes can return to normal and the price difference called “kimchi premium” can turn into a reliable market indicator again.
The Democratic Party has had a more cautious attitude towards cryptocurrencies in the past. However, due to large-scale capital outflow, practical solutions are now being discussed. If the law is completely abolished, investors’ tendency to transfer their funds abroad may suddenly disappear.
The tax administration has so far spent approximately 3 billion won to establish an artificial intelligence-based tracking system to audit digital asset transactions. However, if the crypto tax system is completely abolished, this technological investment will remain dysfunctional within the scope of income-based monitoring.
Before the vote in parliament takes place, the law is still in force and the tax obligation remains officially in effect, as planned for 2027. The sector’s eyes will now be on the discussions on the parliamentary agenda.
