South Korean regulators are planning to bring Bitcoin under the taxation radar following the skyrocketing trading volume of the cryptocurrency in the aftermath of Kosdaq. Lawmakers were informed by National Tax Service commissioner Han Seung-hee this weekend that the country’s legislative body is undertaking intricate discussions regarding taxation of cryptocurrencies alongside areas of VAT, capital gains and gift tax.
The October 13th National Tax Service (NTS) hearing organised by South Korean lawmakers in Sejong was mostly centered around the taxation aspect of cryptocurrencies and Bitcoin in particular. According to a publication of Business Post, the NTS Commissioner was asked, “as the daily transaction value of virtual money grows beyond the Kosdaq, we must actively cope with the shift away from the conventional reservations. What is the taxation plan?”
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The commissioner replied saying,:
“ I am still taxing business income, and I am discussing whether to tax the value-added tax or capital gains tax with regard to virtual currencies such as bitcoin.”
Han added that his department is presently collaborating on topics like capital gains and VAT taxation structure along with the Ministry of Strategy and Finance. Han stated that, “the gift tax will be reviewed as it needs to be supplemented.”
The commissioner of NTS feels that increased usage of Bitcoin will open the floodgate to tax evasion. Thus various valuation methods pertaining to taxation of cryptocurrency gifts need to be implemented. Han has also confirmed that, “ we are currently monitoring the status of the [cryptocurrency] transactions and will move forward quickly.”
According to a detailed Business Post publication, the South Korean lawmakers also drew attention to the fact that Japan has classified cryptocurrencies as, “general assets or services and treat them as subject to excise tax.” The Japanese National Tax Agency explained the scenario stating that, “Bitcoins can be used for purchasing goods, etc., and profits arising from using them will be subject to income tax” in Japan. They also added that:
“Gains and losses (gains or losses recognized on the basis of relative relationships with foreign currencies or foreign currency) arising from the use of bitcoin, as a general rule, except for cases arising in association with acts that cause various incomes such as business income, are classified as miscellaneous income.”
Han was also recorded as mentioning that, “the United States is actively responding to the taxation of virtual money as an asset” and that the profits arising from such transactions are brought under the tax periphery. He emphasized on this point stating that, “We have to be proactive like the United States and Japan.”
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South Korea has for long been involved in shaping a regulatory framework for housing the digital currencies. Lawmaker Park Yong-jin submitted a “Bitcoin Regulation Act” in August however no action was undertaken regarding the same. The regulators also came together in early September to talk about the best possible way of dealing with the digital currency forms. They did come up with certain upfront solutions such as implementing strict verification process and inducing crypto exchanges to conduct due diligence procedures.
Korea Communications Commission along with the Ministry of Science and ICT also made the announcement of conducting on-site inspections of participating cryptocurrency service providers along with bitcoin exchanges. However the government stunned cryptocurreny enthusiasts around the globe with last month announcement of banning all ICO activities in South Korea.
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