Word from government departments indicates a task force comprised of National Tax Service officials and blockchain experts will soon be formed, with the purpose being to resolve the issue of appropriate taxation for the cryptocurrency industry. (Image: Korea Bizwire)
SEJONG, Dec. 18 (Korea Bizwire) – Word from government departments indicates a task force comprised of National Tax Service officials and blockchain experts will soon be formed, with the purpose being to resolve the issue of appropriate taxation for the cryptocurrency industry.
There has been some consternation regarding the question of taxes on currencies like Bitcoin and Ethereum. Specifically, their classification as “neither legitimate currency nor financial product” has removed potential VAT exemption, yet it has been pointed out that imposing VAT may give rise to an undesirable double taxation situation.
The government intends to tread carefully, and will look to the example of European markets as a benchmark; a ministerial worker said, “With the Court of Justice of the European Union deciding on a VAT exemption for cryptocurrency suppliers, it appears likely Europe as a whole will abide by the ruling.”
Germany and Australia, two countries that were formerly pro-VAT on cryptocurrencies, have now taken up the opposite stance. South Korean authorities likewise are not believed to be keen on imposing VAT.
In a scenario where taxation (VAT) occurs, suppliers/sellers would be taxed when conducting transactions at exchange centers. Taking into account the fact that cryptocurrencies are bought and sold not just for profit, but also to use as a currency to purchase goods, the latter action may cause double taxation.
For instance, to purchase an item using Bitcoins, the prospective buyer must convert South Korean won into the digital medium, a transaction that would result in a VAT charge. The converted pile of Bitcoins would then be used to purchase the item, which would once more result in a VAT charge.
The government intends to tread carefully, and will look to the example of European markets as a benchmark; a ministerial worker said, “With the Court of Justice of the European Union deciding on a VAT exemption for cryptocurrency suppliers, it appears likely Europe as a whole will abide by the ruling.” (Image: Yonhap)
Should the supplier and seller of the Bitcoins and item be one and the same, this would incur a VAT charge for each transaction.
With pockets of restaurants and stores accepting payment in digital currencies popping up, the belief is that the government must address the issue before it escalates into a more contentious problem.
The issue of capital gains tax from the sale of cryptocurrencies will be held under the authorities’ microscope. Though the official position has been “wherever there are earnings, there also must be taxation”, the lack of legal backing, plus the anonymity of buyers and sellers have so far impeded attempts to impose taxes.
Though industry experts have suggested that exchange centers be required to surrender user data to regulators in order to prevent tax evasion, a counterargument raised has been that such attempts may stultify the still burgeoning technological arena.
Preliminary forecasts are that a capital gains tax will be imposed, but the central focus will be on a transaction tax, similar to stock trading.
S.B.W. (sbw266@koreabizwire.com)
