South Korea has announced a set of tax law amendments that will cut tax benefits for cryptocurrency exchanges. Currently, crypto exchanges have had access to the same benefits as many small and medium-sized businesses.
“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],” read the South Korean Government’s “Revised Tax Law 2018” draft, which was officially published on Monday. Under current laws, income and corporate taxes are reduced between 50 percent and 100 percent during the first five years of the life cycle of startups, SMEs, and venture companies.
If the draft passes through review by the National Assembly, it will become law later this year.
S. Korean Government May Be Looking to Cash In on Crypto Exchange Taxes
The draft explained that cryptocurrency exchanges were going to be excluded from the benefits “because the cryptocurrency trading business lacks the effect of creating added value.” However, the government may actually be looking to cash in on big revenue: according to Seoul Finance, crypto exchanges are currently liable to pay as much as 22 percent.
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“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 explained. For example, Bithumb (which brought in roughly US$223 million last year) would be required to pay nearly $50 million in tax.
Seoul Finance also said that regulators are also allegedly considering placing a capital gains tax on cryptocurrency, but refrained from proposing one “based on the judgment that more research is needed.”
The Latest Move by Regulators
This is the first regulatory action taken by the South Korean government since the South Korean Policy Advisory Council met in June to develop a regulatory structure for domestic cryptocurrency exchanges.
“Under current regulations, there are clear limitations in preventing money laundering on crypto exchanges because the only way authorities can spot suspicious transactions is through banks. If the bill of lawmaker Jae Yoon-kyung from the Democratic Party of Korea passes, local authorities will be able to impose identical regulations on crypto exchanges that are implemented on commercial banks,” a spokesperson for the Korean Financial Intelligence Unit said at the time.