The South Korean government has announced a new set of tax law amendments. Under this proposal, bitcoin exchanges will no longer be eligible for income and corporate tax deductions currently enjoyed by small and medium-sized businesses. The regulators have also been considering imposing capital gains tax on the sale of cryptocurrencies.
Stripping Away Tax Benefits
The South Korean government has announced its proposed Revised Tax Law 2018. In the official statement published Monday, the government wrote, “from next year, virtual currency handling businesses will be excluded from the industries eligible for the tax reduction for SMEs [small and medium-sized enterprises].”
News1 explained that crypto exchanges “have been considered as venture companies or small and medium-sized businesses for tax purposes until now,” allowing them to benefit from considerable income tax deduction. Citing other favorable tax treatments such as depreciation of assets acquired during the first four years, the publication elaborated:
Under the current tax exemption rules, income tax and corporation tax are reduced by 50% to 100% for five years for business startups, SMEs and venture companies.
Crypto Exchanges to Pay Higher Taxes
According to the news outlet, the government has decided to exclude crypto exchanges from the list of entities eligible for SME tax deduction “because the cryptocurrency trading business lacks the effect of creating added value.” The revised tax law will be submitted to the National Assembly and, if passed, will go into effect next year.
Crypto exchanges are currently liable to pay corporation tax of up to 22%, Seoul Finance described, adding that “considering that virtual currency exchanges earned huge amounts of money in the last year and earlier this year, it is estimated that the amount of exemption would be considerably large.” The publication conveyed that under the current setup:
Bitsum exchange, which is estimated to have net profit of over 250 billion won [~US$223 million] last year, should pay 54.4 billion won [~$48.6 million] in corporate tax but it is expected to save 27.2 billion won [~$24.3 million] since it receives 50% reduction.
However, “taxation on the sale of cryptocurrency was not included in the amendment bill…based on the judgment that more research is needed,” the publication emphasized. “The government has been considering imposing capital gains tax virtual currency trading profits since early this year, but no specific taxation bill has come out.”
What do you think of the Korean government proposing to take away tax benefits for crypto exchanges? Let us know in the comments section below.
Images courtesy of Shutterstock and the Korean government.
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Author: Kevin Helms