Key regulatory issues surrounding cryptocurrency are struggling to gain momentum in South Korea. The digital asset basic law, which aims to regulate the issuance, distribution, and operation of cryptocurrency businesses, is facing delays, with the public hearing originally scheduled for September now likely to be postponed. As the implementation of cryptocurrency taxation approaches in January, calls for regulatory improvements from investors and industry stakeholders are growing.
As of September 26, discussions on the digital asset basic law have not yet formally commenced in the National Assembly. Initially, lawmakers planned to hold a public hearing at the end of this month, followed by discussions in a legislative subcommittee in November after the October National Assembly audit. However, delays in preparing the government proposal have made it difficult to hold the public hearing in September.
The Financial Services Commission (FSC) has stated that despite the delay in submitting the government proposal, discussions in the November subcommittee can proceed based on already proposed bills. Na-yoon Seo, head of the FSC's cryptocurrency division, explained at a seminar on September 22, "Even if the government proposal is delayed, there are already proposed bills, so we expect and are preparing for the subcommittee to proceed in November."
There are also calls within the National Assembly to begin discussions based on lawmakers' proposals rather than waiting for the government proposal. Min Byung-deok, a member of the Democratic Party, emphasized the need to expedite legislation by conducting discussions at the National Assembly level and then merging them with the government proposal.
However, the remaining schedule is tight. Following the October National Assembly audit, the review of next year's budget is also on the agenda, and there are numerous issues that need to be reconciled within the bill itself. Key points include the issuance of won-denominated stablecoins and restrictions on the ownership stakes of major shareholders in cryptocurrency exchanges. Even if the government proposal is submitted, significant discussions are expected during the process of merging it with lawmakers' proposals.
Industry stakeholders are concerned that if legislation is delayed into the next year, uncertainty could persist. As financial companies and fintech and cryptocurrency businesses prepare for related projects, there are demands for an early indication of the regulatory framework and for a formal discussion platform to gather industry opinions.
There is also a growing need for further discussions regarding the cryptocurrency taxation set to take effect next year. Under the current income tax law, income from the transfer and lending of cryptocurrencies will be taxed as other income starting January 1. A tax rate of 22% will apply after a deduction of 2.5 million won from annual income, including local income tax.
Investors are pushing back, arguing that the regulatory framework for taxation is not sufficiently established. A survey conducted by Tiger Research among 2,423 domestic cryptocurrency investors found that 73.7% oppose the taxation. Among those opposed, 51.5% indicated they would accept taxation if the regulatory framework were adequately improved.
Notably, 66.4% of respondents believe that the administrative and IT systems necessary for taxation are not adequately prepared, and 65.7% find it difficult to accurately track transaction histories from domestic and foreign exchanges and personal wallets. The industry argues that issues such as securing overseas transaction information, determining acquisition costs, and loss carryforwards need to be discussed in more detail before the implementation of taxation.
Concerns have also been raised that domestic investment funds may shift to foreign exchanges following the implementation of taxation. According to the office of Park Soo-young, a member of the People Power Party, the net inflow of assets in the top five won-denominated exchanges from January to August this year was 2.5 trillion won, a 56.8% decrease compared to the same period last year. The net outflow of assets from Korbit and Gopax to foreign exchanges increased by 74.2%, from 275.7 billion won to 480.2 billion won during the same period. However, it is difficult to definitively attribute these changes to the impact of taxation, as other market factors may also play a role.
An industry representative stated, "With the public hearing originally scheduled for September being postponed, if legislative discussions extend into the next year, the establishment of the regulatory framework could be further delayed. To connect the technological validations being conducted by the industry to actual business operations, it is essential to quickly establish standards regarding issuance, distribution, and user protection."
* This article has been translated by AI.
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