A representation of the virtual cryptocurrency Bitcoin / Korea Times photo by Shim Hyun-chul

Financial industry officials and investors are expressing concerns about the taxation on cryptocurrency scheduled to begin next year, noting that the country has yet to establish the relevant legal framework.

They argue that a lack of preparedness will lead to confusion among investors and tax authorities, compounded by the challenges of taxing highly volatile digital assets.

The measure entails a 22 percent tax on profits from cryptocurrency trades exceeding 2.5 million won ($1,813) in a one-year period. Since virtual assets are not classified as financial products in Korea, they will be taxed as other income, and not as financial investment income. The tax will cover profits not only from trading but also from various crypto activities, such as mining, airdrops, hard forks, and staking.

It was originally planned to be implemented in January 2022. However, the lack of an adequate taxation system and rules on investor protection delayed the enforcement until January 2025.

Even after two years, industry insiders and investors believe that uncertainties have not been sufficiently addressed to start taxation next year.

There is criticism that, unlike the stock market, specific guidelines or legal frameworks have not yet been established for virtual assets.

A public petition was submitted to the National Assembly requesting a delay in cryptocurrency taxation.

"If taxes are imposed without proper preparation, many coin investors could migrate to exchanges overseas," the applicant wrote on the Assembly's online petition platform. "Please consider postponing the taxation for two more years and thoroughly examine potential issues before proceeding with it."

However, the petition expired automatically when the 21st Assembly ended its term on May 29. With less than six months remaining until implementation, discussions have returned to square one.

Another problem is that cryptocurrency experiences high price volatility and is more frequently traded compared to other assets.

"When using decentralized exchanges on the blockchain, tracking the initial acquisition price can be challenging. Additionally, if transactions pass through multiple exchanges, including ones overseas, it becomes complicated as digital wallet addresses and transaction histories must be collected individually from each exchange," an industry source said. "The burden of proving tax liability can be passed on to investors under the current plan."

Domestic exchanges are also concerned about a potential exodus of investors to evade taxes. The current plan would solely rely on voluntary reporting by investors, as overseas exchange operators are unlikely to fully cooperate with Korean tax authorities.

Kim Kab-lae, head of the Korea Capital Market Institute's Financial Law Center, urged the government to announce detailed taxation guidelines to avoid market confusion.

"To improve tax compliance rates and the quality of related tax services, the public sector needs to establish an efficient virtual asset taxation system, while the private sector should release more user-friendly virtual asset tax calculation programs," Kim said. "Enhancing such infrastructure requires increasing the rationality and predictability of the tax system through clear guidelines."