Gains above 2.5 million won (about $1,800) to be taxed at 22%; stock investors pay nothing on the same returns; critics flag health insurance impact and no loss carryforward
South Korea's planned digital asset tax, set to take effect in January next year, is drawing sharp criticism over fairness. Under the new regime, digital asset income will be classified as "miscellaneous income," with gains above 2.5 million won ($1,800) a year taxed at 20 percent — 22 percent including local income tax. The industry, academics and investors have all raised objections, and the debate is expected to continue until the law takes effect.
Oh Moon-seong, chairman of the Korea Tax Policy Association and a professor at Hanyang Women's University, said at an emergency forum on virtual asset taxation held at the National Assembly members' office building last month that the current tax proposal violates the principle of tax equality.
"When an investor earns 10 million won ($7,200) in annual returns, a stock investor pays no tax, while a digital asset investor faces a 22 percent rate and owes 1.65 million won ($1,190)," Oh said. He added that pressing ahead with taxing digital assets alone was a "logical contradiction" when the same arguments used to abolish the financial investment income tax applied equally to virtual assets.
The core of the controversy is the stark disparity with the treatment of stock capital gains. For domestic equities, only major shareholders pay capital gains tax. With the financial investment income tax recently abolished outright, the tax-free structure for stock gains has in effect become permanent. The digital asset industry said investors "end up bearing a heavier tax burden simply because their investment vehicle is a digital asset, even though the underlying capital gain is identical."
The classification of digital asset income as miscellaneous income also raises concerns about national health insurance premiums. Stock capital gains are excluded from the premium calculation, but digital asset income, falling under miscellaneous income, will be factored in.
The absence of a loss carryforward provision is another sticking point. If a digital asset investor loses 5 million won ($3,600) in 2027 and earns 10 million won ($7,200) in 2028, the prior loss cannot be offset against the later gain — meaning the full 10 million won in 2028 profits would be taxed.
Industry officials warn that overseas precedents show a poorly designed tax regime can shrink the digital asset market.
India introduced a 30 percent income tax on digital asset gains in January 2022, then added a 1 percent transaction tax on all trades that July. Trading volume on major Indian exchange WazirX fell 68 percent immediately after the measures took effect, while CoinDCX dropped 83 percent and ZebPay declined 16 percent.
Japan classified digital asset income as "miscellaneous income" in 2017 and imposed a tax structure combining personal income tax with a 10 percent resident tax. Companies holding digital assets faced roughly 30 percent corporate tax based on year-end market valuations. The regime triggered what the industry called a "Web3 Exodus," with promising blockchain startups and talent leaving for Singapore and Dubai.
Japan ultimately exempted long-held corporate digital assets from year-end mark-to-market taxation and is now pursuing a broader tax overhaul that would bring virtual assets under the financial products framework, allow loss carryforwards and apply a flat separate tax rate of 20.315 percent. People Power Party lawmaker Song Eon-seog said that "pushing ahead with taxation while investor protections and regulatory frameworks remain inadequate is likely to weaken the industry's competitiveness and harm investors." An industry official said that "looking at global cases, the success or failure of digital asset taxation depends less on whether you tax and more on how you do it."
sjpark@heraldcorp.com
