South Korea Plans to Delay 20% Crypto Tax Implementation to 2028 – Is This Beneficial for Traders? What's Behind the Decision?

A Rollercoaster Ride with No End in Sight?

South Korea boasts a vibrant cryptocurrency market, with a staggering 12.5% of its population (roughly 6.5 million people) actively using crypto as of late 2023.

This thriving scene, however, has been entangled in a web of "will they, won't they" regarding cryptocurrency taxes.

The story began in 2021 when the government first proposed a 20% tax on crypto gains exceeding a basic deduction of 2.5 million won (around $1,800).

This move sparked immediate backlash from investors and industry experts, citing the potential for market devastation.

Fast forward to today, and the crypto tax saga has taken another dramatic turn. The initial implementation date of 1 January 2022, has been pushed back twice – first to 2023 and then to 2025.

Now, there's a strong possibility of a further delay, potentially pushing the tax all the way to 2028.

But what's driving this latest twist?

The Three-Year Reprieve: A Response to Market Jitters and Investor Flight

The current push for a three-year delay stems from a confluence of factors.

Primarily, it's a response to the current bearish sentiment plaguing the crypto market.

With Bitcoin prices plummeting and the broader market experiencing a harsh correction, investors are understandably skittish.

The South Korean government, mindful of this negativity, fears that imposing a tax now would be the final straw, driving a mass exodus of investors from the market.

Industry insiders paint a grim picture.

They point to the drastic decline in daily cryptocurrency trading volume on domestic exchanges – from a staggering 20 trillion won in March to a mere 2 trillion won recently.

Their stark assessment is that implementing the tax in early 2025 would trigger a further decline, potentially crippling the market.

The bill’s description on the South Korean National Assembly's website perfectly captures this sentiment:

"As at the moment, the investor sentiment for crypto is negative, most investors are expected to leave the market if the country imposes an income tax on an asset that has higher risks than stocks."

The Korean Crypto Market is A Powerhouse with Potential Risks

South Korea boasts a robust and influential cryptocurrency market.

Statistics reveal that a staggering 6.5 million people, translating to 12.5% of the population, were actively involved in crypto as of last year.

Furthermore, the Korean won even surpassed the US dollar as the preferred fiat currency for crypto trading in the first quarter of 2024.

This vibrant market plays a significant role in the South Korean economy. However, officials are also worried about the potential risks associated with a largely unregulated crypto space.

The lack of a clear legal framework and robust investor protection measures raises concerns about market volatility and potential manipulation.

The Power of Public Opinion

The influence of public opinion on South Korea's crypto tax policy cannot be overstated.

The ongoing delays are a testament to this dynamic.

The current administration, under President Yoon Seok-yeol, appears to be particularly attuned to the growing dissatisfaction among investors.

Additionally, the delays in implementing the financial investment income tax further complicate the situation.

Crypto Exchanges in Limbo

The impact of the delay extends beyond investors. Crypto exchanges are also caught in the crossfire.

The uncertainty surrounding the tax implementation makes it difficult for them to plan for the future.

A clear tax framework would provide much-needed stability for these businesses, allowing them to operate with greater confidence.

More Time for a More Sustainable Tax System?

If the proposed delay is approved, it offers some potential benefits for both investors and the government.

This three-year respite could provide the government with a crucial window of opportunity to develop a more practical and investor-friendly tax system.

A well-designed system could address market concerns, stabilise the crypto space, and ultimately encourage continued investment.

This, in turn, could translate into a more sustainable tax revenue stream for the government in the long run.

A Balancing Act

Coinlive believes the ongoing saga surrounding South Korea's crypto tax policy highlights the complexities of regulating a burgeoning industry.

While the government seeks to generate tax revenue and mitigate financial risks, a cautious approach is necessary to avoid stifling innovation and investor participation.

The current pause offers a valuable window to establish a comprehensive regulatory framework that fosters a secure and sustainable crypto ecosystem for both Korea and the global market.