With South Korea's long-delayed taxation on virtual asset transfers and loans scheduled to take effect on January 1 next year, the domestic cryptocurrency industry is ramping up calls for a further postponement. Industry stakeholders argue that critical foundational systems remain unequipped to handle complex compliance requirements, threatening market stability and creating significant regulatory burdens.

Under the current Income Tax Act, a 22% tax rate (including local income tax) is set to apply to virtual asset gains exceeding 2.5 million won annually, with the first reporting and tax filing cycle slated for May 2028. However, the Digital Asset Exchange Alliance (DAXA), alongside various legal and financial experts, argues that rushing the implementation without adequate administrative infrastructure will lead to severe market confusion.

The foremost concern raised by the industry is the calculation of acquisition costs. For digital assets transferred from overseas platforms or private wallets to domestic exchanges, there is currently no official verification system to track initial acquisition dates and prices. If the purchase price for even a single transaction across multiple wallets is missing or unverifiable, calculating the overall capital gains becomes mathematically and legally problematic.

Non-resident withholding tax systems also pose major practical hurdles. Virtual asset exchanges state that Customer Due Diligence (KYC) procedures alone are insufficient to accurately determine whether a user qualifies as a tax resident or non-resident under Korean law. Furthermore, clear guidelines are lacking on the precise legal timing for withholding taxes during asset withdrawals or exchanges.

Another acute operational risk involves liquidating withheld digital assets into cash. While exchanges would be required to withhold taxes in the form of cryptocurrency, the government demands actual tax payments in Korean won. If market volatility causes prices to plummet during the liquidation process, crypto service providers would be forced to absorb the financial losses.

Furthermore, the industry notes that taxation standards for decentralized finance (DeFi), real-world assets (RWA), non-fungible tokens (NFTs), token swaps, and reward-based activities such as staking, lending, airdrops, and hard forks have not been comprehensively codified into law. Detailed reporting systems for these novel transaction types are still in their infancy.

Concerns regarding cross-border capital flight and fairness between domestic and foreign exchanges have also been highlighted. While domestic-registered exchanges are subject to strict regulatory oversight and investigative powers, overseas platforms largely operate outside this domestic purview. This regulatory asymmetry could incentivize high-net-worth investors to move their assets to foreign platforms or private cold wallets.

DAXA specifically pointed out vulnerabilities regarding the Crypto-Asset Reporting Framework (CARF). While South Korea is scheduled to adopt CARF as a first-wave country in 2027, many major jurisdictions housing prominent overseas exchanges will not implement it until 2028, creating at least a one-year international information-sharing gap.

These tax implementation challenges coincide with a wave of other massive regulatory compliance upgrades facing virtual asset service providers in the second half of the year, including amendments to the Act on Reporting and Using Specified Financial Transaction Information, voice-phishing victim refund schemes, and network upgrades mandated by the Foreign Exchange Transactions Act.

The industry suggests that if tax implementation is postponed, lawmakers should simultaneously consider raising the basic annual deduction threshold above the current 2.5 million won limit and introducing a loss carryforward deduction period of at least five years. Over the long term, experts recommend designing a comprehensive capital gains tax framework that harmonizes virtual assets with traditional financial investments such as equities.

DAXA concluded that aligning the legal classification and regulatory framework of virtual assets prior to taxation is the most rational path forward. The alliance urges authorities to prioritize the implementation of the forthcoming Digital Asset Basic Act, establish robust international information exchange channels, and thoroughly refine asset-specific tax guidelines before reconsidering the implementation timeline.

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