Calls for Reform of Cryptocurrency Taxation Ahead of Implementation

As the implementation of cryptocurrency income taxation approaches in four months, experts are calling for a revision of the current system that taxes all income as other income, regardless of transaction type. They propose introducing loss carryforward deductions and integrating calculation and reporting procedures.

Park Jong-soo, president of the Korean Tax Law Association and a professor at Korea University’s Law School, pointed out during a discussion on the '2027 Cryptocurrency Taxation Framework' held at the National Assembly on September 3 that, "Since the legal basis for taxing cryptocurrency income was established in the 2020 Income Tax Act, the basic structure of uniform taxation has not changed despite three delays due to insufficient infrastructure for securing tax data and determining acquisition costs."

The discussion was organized by Democratic Party lawmaker Moon Jin-seok, in collaboration with the Digital Asset Exchange Alliance (DAXA) and the Korean Tax Law Association.

The current income tax law classifies income generated from the transfer and lending of cryptocurrencies as other income. A 20% tax rate is applied to the amount remaining after deducting acquisition costs, related expenses, and a basic deduction of 2.5 million won from annual income. Including local income tax, the total rate is 22%.

Professor Park argued that income should be classified based on the economic nature of transactions. He suggested categorizing sales and exchanges as capital gains, mining as business income, and lending and staking rewards as interest income. He also proposed distinguishing between income and gifts for cryptocurrencies received through airdrops based on whether they are given for consideration.

Equity in taxation compared to other investment assets was also highlighted as a concern. While capital gains for small shareholders in domestic listed stocks are tax-exempt, cryptocurrency income is taxable if it exceeds 2.5 million won annually, regardless of the investment scale.

The lack of loss carryforward deductions was also identified as an area for improvement. The system set to be implemented next year allows for the aggregation of gains and losses from cryptocurrencies within the same tax period, but it does not permit carrying over remaining losses to the following year for deduction against future profits.

Professor Park emphasized the need for mechanisms to adjust annual gains and losses, given the high volatility of cryptocurrency prices and the realization of gains and losses over multiple tax periods.

As an alternative, he proposed a so-called 'Cryptocurrency Investment Income Tax,' which would establish a basis for taxation by categorizing income into interest, business, capital gains, and other income based on transaction types, while integrating calculation, reporting, and data submission procedures similar to those for foreign stock reporting.

He stated, "Implementing taxation under the current method without addressing transaction types and loss handling is insufficient."