By Lee Kyung-min
Market watchers are showing growing interest in whether a pending bill governing the regulation of cryptocurrency will pass the National Assembly in February, which would lay the groundwork for the government to establish legal grounds to tax what has long remained a lucrative, tax-free transaction.
The much-awaited passage anticipated at the parliamentary plenary session Feb. 27 will also be the first step towards joining the global wave of setting up guidelines on the digital currency in line with previous recommendations from the Financial Action Task Force (FATF), a global standard-setting body.
Once passed, the government will be able to outline grounds to tax the digital currency, a move consistent with previous attempts to revise ordinances of a related law scheduled to be discussed as early as July.
This will be facilitated as the passage of the bill would require cryptocurrency exchanges to identify users and their transaction history, a basis for the government to tax them.
Debates will follow over whether to impose capital gains tax, or withholding tax, a measure imposed by the National Tax Service.
The Tax Tribunal is reviewing a motion filed by Bithumb against the NTS over 80.3 billion won ($69.1 million) in what the crypto exchange claims is a "groundless" withholding tax the agency imposed last November.
Bithumb maintains the digital currencies have yet to be recognized as legal and therefore are not taxable, a claim refuted by the tax agency which sees gains withdrawn in Korean won from accounts held by foreigners as falling under "other income" and therefore taxable.
This is the same grounds the finance ministry is seeking to establish.
The passage will also enable Korea to be prepared for the upcoming review on the virtual asset regulation by the FATF, which plans to "evaluate next steps in June 2020," a statement that followed its previous recommendation that "countries need to implement the FATF's measures, and soon."
The intergovernmental organization said in a report that the move "will ensure transparency of virtual asset transactions and keep funds with links to crime and terrorism out of the cryptosphere."
The statement acknowledges that many virtual asset service providers are perceived as "risky" business, a reason why they are denied access to bank accounts among many other regular financial services.
"While implementing the FATF's requirements will be challenging for the sector, it will ultimately increase trust in blockchain technology as the backbone behind a robust and viable means to transfer value," it said in the report.
Korea Capital Market Institute (KCMI) capital market division researcher Jung Ji-su highlighted the urgency of the passage of the law, noting that the FATF will determine whether countries have successfully implemented its recommendations and are regulating the virtual asset service provider sector accordingly.
"Only with the passage will Korea be able to join global peers in regulating cryptocurrency, a first step toward ensuring transparency in what is likely to be a vibrant market in the years to come," she said.