South Korea's cryptocurrency firms are set to gain some respite as the government has decided to postpone the implementation of capital gains tax on cryptocurrencies by two years. This move comes as a relief for the industry, which has been facing uncertainties regarding the tax regulations.

South Korea's Crypto Tax Delay: A Boon for Firms

Delaying Cryptocurrency Tax Policy

For the second time, South Korean authorities have announced that the capital gains tax on cryptocurrencies, which was scheduled to be introduced in January 2025, will not be pushed through. The current political situation in the country has made it difficult to implement the tax in the next year, and it has been deferred until 2027. The Democratic Party of Korea floor leader Park Chan-dae stated on Sunday that they have reached an agreement to postpone the taxes on profits from cryptocurrency trades. "We have decided to agree to a two-year moratorium on the implementation of the cryptocurrency taxation proposed by the government and ruling party," Park said. Despite reports suggesting that the KDP and the ruling People's Power Party have reached a political deal inclined towards a looser approach to taxing crypto gains, a two-year suspension has been agreed upon. Earlier, the People's Power Party proposed to delay the new crypto taxation until January 2028.

Increase Tax-Deductibles

Previously, the Democratic Party opposed the tax moratorium and proposed increasing the tax deductibles instead. Under their initial proposal, the legislators suggested hiking the tax-deductible from the threshold of 2.5 million won to 50 million won, with the aim of implementing the law without any delay. As of today, the market cap of cryptocurrencies stands at $3.37 trillion. However, on Sunday, the party concurred with other South Korean lawmakers to move the implementation date. Meanwhile, Park made it clear that their party would not agree on the government's legislative measures on inheritance and gift tax bills that would "benefit the super wealthy." The South Korean government wanted to reform the country's inheritance tax law by imposing a lower tax rate of 50% to 40% while increasing the deduction thresholds for children inheriting from parents.

Assessing The Law's Impact

Park said that delaying the introduction of the law by two years will give the South Korean government legislators ample time to evaluate the impact of imposing taxes on profits earned from digital assets. Cryptocurrency traders will also have two more years to prepare before being charged on the income they earned from virtual currency trading. Once implemented, South Korean cryptocurrency investors will have to pay a 20% capital gains tax from trading in digital assets. The South Korean government initially aimed to implement a crypto tax in 2021 but was delayed until 2023 due to concerns about its adverse effect on the local cryptocurrency market. The projected 2023 implementation was later postponed and was supposed to be imposed in January next year. But once again, the timeline has been moved further to 2027.