Despite the growing acceptance of cryptocurrency around the world, governments are still looking to define and tax crypto. Is it an alternate form of currency, or is it an asset or securities? Are crypto profits capital gains or income?
In Japan, the crypto tax is dependent on an individual’s income, and higher income may be subject to a whopping 55% tax on crypto gains, compared to the 20% tax the same investor would pay on profits from ordinary shares.
In contrast, South Korea, which currently has no crypto tax, is expected to levy a 20% tax on crypto gains starting next year – far less than its maximum tax rate of 45%.
South Korea is now poised to delay the politically unpopular plan to impose a crypto tax in a presidential election year.
At the South Korean National Assembly’s tax subcommittee meeting today, the ruling Democratic Party and the opposition Conservative Party essentially agreed to postpone a 20% levy on income from virtual assets, from the start of 2022 to January 1, 2023.
A meeting on the tax delay bill was held earlier this week on Wednesday, but ended without a decision due to opposition from the Ministry of Economy and Finance. Officials at the second meeting today agreed to temporarily postpone the taxation of cryptocurrency gains. However, local media report that the delay is not finalized, but a National Assembly official expects a decision to be made over the weekend and the bill to pass next Monday. while the two political parties agree.
The National Assembly has yet to decide whether to raise the tax exemption limit for virtual capital gains so that it is at the same level as that of stock market capital gains.
When South Korea announced the 20% crypto gain tax on an amount of 2.5 million Korean won (approximately $ 2,090), investors criticized the plan, noting that the tax policy is constructed in such a way. unfair to the equity gains tax. Equity income will be taxed at 20% on 50 million won, or approximately US $ 41,800, and is expected to begin on January 1, 2023.
Critics of the crypto tax plan, many of whom are in their 20s and 30s, have argued that since cryptocurrencies have similar characteristics to financial assets, they should be taxed on the same basis. Eager to win the votes of people in their twenties and thirties for the upcoming presidential election on March 9, 2022, political parties have started pushing back the postponement of crypto-taxation.
However, the South Korean government has given its own reason for putting a difference in the tax on virtual asset gains, away from the tax on stock gains. He explained that under the current income tax law, income generated from virtual asset transactions is classified as other income. Examples of other income include cash prizes, cash rewards, and lottery winnings. And cryptocurrencies have been classified as intangible rather than financial.
The government also explained that there are special tax benefits for income from certain financial investments and virtual assets are not classified as financial assets in South Korea, hence the lower threshold for tax deduction.
“I think the reason why the Ministry of Economy and Finance classified virtual assets as intangible assets is the negative perception, or this social stigma that Korea had on cryptocurrencies,” said Cha Dong- joon, professor in the tax accounting department at Kyungbok University, in an interview with Forkast.News. “But in reality, [cryptocurrencies] look a lot like financial assets, and the trading methods are very similar to stock trading. So I think crypto gains should be classified as financial income. “
In Japan, crypto investors face even more onerous tax responsibilities – and that’s not up for debate.
Japanese stock investors pay a 20% tax on profits from stocks – an income tax of 15% and a resident’s tax of 5%. The tax rate remains the same regardless of the amount of income from the shares.
However, it’s a whole different story with cryptocurrencies. From 2018, the Japanese government started taxing virtual asset gains from 5% to 45%. With the 10% housing tax, investors who earn more than 40 million Japanese yen (approximately US $ 351,000) from virtual assets face a massive 55% tax liability.
In addition, the tax loss carryforward regime applied to shares is not applicable to virtual assets. A tax loss carryforward allows investors to carry forward a tax loss to future years to offset a profit. Equity investors can carry forward the loss for three years. Essentially, Japanese crypto investors end up with few benefits and a lot of taxes.
The collector’s reasons are similar to South Korea’s: Japan’s National Revenue Service taxes virtual currency earnings by classifying them as miscellaneous income. Investors in virtual assets in Japan do not enjoy any special benefits, as the Japanese government has made exceptions for stocks and currency futures and imposed low tax rates.
This has led many investors in Japan to remove virtual assets from their portfolios, while others have hidden their crypto income. In October, Japanese tax authorities discovered and began investigating undeclared virtual currency income worth US $ 6 million in the Kanto region.