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Substandard exchanges to get kicked out
By Park Jae-hyuk
The government will speed up its efforts to tax cryptocurrencies after the National Assembly passed a revision to the Reporting and Using Specified Financial Transaction Information Act, industry officials said Monday.
The main purpose of the revision is to put the cryptocurrency industry under government regulation.
According to the Financial Services Commission (FSC), the revision will obligate crypto exchanges to take anti-money laundering measures and conduct their businesses based on real-name accounts as provided by banks.
The financial authorities will not allow the registration of exchanges failing to follow these requirements.
If they conduct business without registration, the owners can be sentenced to up to five years in jail or fined up to 50 million won ($42,000).
The revised law will lay the groundwork for the government to establish the legal grounds to tax virtual assets, because cryptocurrency exchanges will be required to identify their users and transaction histories ― providing a basis for the government to tax them.
Since the National Tax Service sparked controversy in December 2019 by slapping an 80 billion won tax on Bithumb over cryptocurrency trading by foreigners, the government has sought to tax digital currencies.
Although Bithumb claimed digital currencies were not taxable as there were no legal grounds, the passage of the revision will seem to invalidate that claim.
The Ministry of Economy and Finance will announce the details about the taxation in July.
The private sector has also discussed the issue.
The Korea Blockchain Association said it would survey market participants and deliver their opinions about the tax to the authorities.
"Holding a series of debates on cryptocurrency taxation lately, we have sought opinions from scholars, not just our members, so as to conduct a better research on taxation," a Korea Blockchain Association official said.
The revised law is also expected to force substandard crypto exchanges to leave Korea.
Although real-name accounts have become necessary for registration, only four exchanges ― Upbit, Bithumb, Coinone and Korbit ― satisfy the requirement.
They have affiliated with certain commercial banks and have allowed transactions only to users who have accounts with the affiliated banks.
Smaller exchanges have conducted business with their own corporate accounts, as banks would not affiliate with them.
Industry officials expect the market will be reorganized in favor of major players.
"I hope the new law guarantees transparency and safety of virtual assets trading in Korea, so as to distinguish good companies from bad ones," said Rep. Kim Byung-wook of the ruling Democratic Party of Korea, who proposed the revision.
The FSC said the revision will help the Korean cryptocurrency industry meet global standards.