From large-shareholder thresholds and the Comprehensive Real Estate Tax to virtual assets…tax principles retreating under public pressure - 경향신문

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As the likelihood grows that taxing income from virtual assets will be postponed for a fourth time, critics say the government's tax policy is repeatedly retreating under backlash from public opinion. After scrapping last year's plan to tighten the large-shareholder threshold for capital gains tax on stock transfers, this year it also withdrew parts of the Comprehensive Real Estate Tax reform in the face of opposition. Concerns are being raised that, as a government that had pledged to enhance tax fairness backs down in the face of taxpayer·investor backlash, the consistency and credibility of tax policy are being shaken.

According to the presidential office and relevant ministries on the 26th, the government is discussing once again deferring the taxation of virtual assets scheduled to take effect in January next year. The presidential office says nothing has been decided yet, but it is reportedly leaning toward a deferral in light of opportunities for asset-building among young people, shortcomings in tax infrastructure, and equity with users of overseas exchanges. Calls for a postponement are gaining traction not only in the opposition but also within the ruling party, making it highly likely that the implementation date will be pushed back again during the National Assembly's tax law review.

It is not the first time the government has scrapped tax-reform plans amid public backlash. Last year, it announced it would lower the large-shareholder threshold for the stock transfer tax from 5 billion won per stock to 1 billion won, but as resistance from individual investors intensified, it decided to keep the existing threshold.

The same happened in August with plans to reduce the basic deduction and raise the tax-burden cap under the Comprehensive Real Estate Tax for non-residents with one home. Faced with backlash that even single-home owners who had relocated for work·education would see heavier burdens, the government withdrew the proposal.

Taxation of virtual assets is following the same path. Though it was scheduled to take effect in January 2022 under a 2020 amendment to the Income Tax Act, the start date has been postponed three timesto 2023, 2025, and 2027citing insufficient infrastructure and investor-protection measures.

There are two main factors behind the government's consideration of deferring the taxation of virtual assets: delays in information exchange with U.S. virtual-asset exchanges, and a political judgment that takes into account ‘young people’.

Forty-six countries·jurisdictions, including South Korea·Japan·the United Kingdom·Germany, will exchange transaction information starting in 2027 under the Crypto-Asset Reporting Framework (CARF), but the United States will not begin exchanges until 2029. The presidential office believes that if taxation is implemented without properly grasping the transaction information of users of U.S. exchanges, the tax burden could be concentrated on users of domestic exchanges.

However, some argue that delays in information exchange with the United States are not sufficient grounds to postpone taxation, because countries such as the United States and Japan began taxing even before the information-exchange framework. Gil Yong-won, a research professor at Kwangwoon University, said, “While it is true that the taxation infrastructure is inadequate, there are countries that are already taxing,” and added, “Given that the system can be supplemented after implementation, the basis for a further deferral is rather weak.”

Even as the United States's information exchange is scheduled for 2029, the government maintained until recently that it would implement the tax next year. Then-deputy prime minister Koo Yun-cheol said at the National Assembly in July, “We will implement it next year for now and make improvements as we go,” and Deputy Prime Minister Lee Hyeong-il also stated in written answers at his confirmation hearing in September that, in line with the principle of ‘taxing where there is income,’ it should be implemented as scheduled. In effect, a government that was emphasizing the principle of taxation as recently as a month ago is reverting to a deferral.

Questions are also being raised about invoking youth asset-building as grounds for a deferral. According to the ‘Survey of Domestic Virtual Asset Service Providers for the First Half of This Year,’ users of virtual-asset exchanges were most commonly in their 40s at 26.9 percent. Those in their 30s followed at 26.7 percent, with their 50s at 20 percent. Those in their 20s and younger accounted for 17 percent.

In a statement on the 25th, People's Solidarity for Participatory Democracy said, “How does imposing taxes on income earned from virtual-asset investments obstruct young people's asset building?” and added, “If, following the abolition of the financial investment income tax, even the taxation of virtual assets is repeatedly deferred, the principle of taxing asset income and trust in tax policy will inevitably be further undermined.”

Kang Sung-hoon, a professor in the Department of Public Policy at Hanyang University, said, “If the policy direction is wrong, it should be changed, but if the issue is the pace of implementation, it is not desirable to change the direction itself because of public backlash,” and added, “Even if the pace is slowed, a roadmap for phased implementation needs to be presented.”