(EDITORIAL from Korea Herald on Oct. 26)

South Korea is set to introduce a tax on cryptocurrency income starting January 1, following three delays since lawmakers approved the plan in 2020. The government is now reconsidering whether to proceed with the tax, as delaying it would raise concerns about years of inaction, while enforcing it prematurely could lead to other issues.

The proposed tax would provide a basic deduction of 2.5 million won ($1,890) from annual income earned through selling or lending digital assets, with the remainder taxed at 22 percent, including local income tax. However, the current system allows for uneven records, with some exchanges lacking complete tax-reporting systems and investors having inconsistent access to transaction histories.

This highlights the need for clear methods to value and report cryptocurrency transactions, including staking rewards and decentralized-finance activities. Delays could also result in disputes that the government may not be able to resolve satisfactorily, as well as a lack of cross-border enforcement due to countries like the US only joining the reporting framework in 2029.

Additionally, the tax design has room for improvement, as losses incurred in a given year cannot be carried forward to offset gains in future years. The government has acknowledged the need for revision, but repeating the same excuse for postponement raises questions about the effectiveness of the additional time. The recently shifted focus from firm assurances to consultations reflects the concerns of young investors and various political parties, but tax policy should not be solely driven by electoral considerations.

Another delay, without tangible progress, would only further erode public confidence. A credible tax system requires solid rules for reporting, clear guidelines for different types of transactions, and effective access to overseas trading data. Establishing these fundamentals before implementing the tax would ensure a more effective and consistent system.

The National Assembly should also work on the Digital Asset Basic Act to create clear rules for the market before tax enforcement begins.