No Financial Investment Income Tax, but 22% on Virtual Assets? The Full Story of the Taxation Petition that Ignited Fury Among 50,000 People

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Despite the government's strong will to tax, public sentiment demanding the complete abolition of the virtual asset taxation system, which has been postponed multiple times, has crossed the threshold of the National Assembly. This brings the discussion on tax reform in South Korea's virtual asset market to a new phase. Investors' fierce opposition, arguing that applying a separate tax standard only to virtual assets is unfair when the financial investment income tax has been abolished to revitalize the capital market, has led to an official re-examination by the legislative body.

According to Bitcoinist, a cryptocurrency specialized media outlet, on May 23 (local time), the 'Petition for the Abolition of Virtual Asset Taxation' posted on the National Assembly's National Consent Petition board surpassed 50,000 consents on May 21, just 8 days after its registration. This number meets the standard for referral to the relevant National Assembly committee. Under South Korea's National Assembly Act, a petition that receives 50,000 signatures within 30 days of public disclosure is automatically put on the National Assembly's official agenda for review. Currently, the petition has garnered over 53,000 consents and has been referred to the National Assembly's Strategy and Finance Committee, where it will be reviewed for its potential inclusion in a plenary session.

According to the current Income Tax Act, the South Korean government plans to levy up to a 22% income tax rate, including local taxes, on virtual asset investment profits exceeding 2.5 million KRW annually, starting from January 1, 2027. This tax proposal was initially aimed for implementation in January 2022 but has already been postponed three times due to opposition from virtual asset investors and insufficient market preparation. Petitioners strongly criticized the government for being eager to collect taxes even though it has not properly established basic market safeguards and infrastructure, such as short-selling regulations, standardization of listing reviews, creation of investor protection funds, and unfair trading monitoring systems.

Concerns about the lack of institutional fairness and the weakening of industrial competitiveness were also presented as key arguments of the petition. The petitioners argued that it is difficult to justify enforcing separate taxation only on virtual assets when the government recently decided to abolish the financial investment income tax to improve the structure of the domestic capital market. They pointed out that a tax policy focused solely on short-term revenue generation could, in the long run, lead to the contraction of the domestic digital asset industry and fatal side effects such as the mass exodus of capital and talent, which are crucial for national wealth creation, overseas.

In response to this public pressure, legislative movements to abolish taxation are also emerging in political circles. Representative Song Eon-seok of the People Power Party recently proposed an amendment to the Income Tax Act, which primarily aims to completely delete tax provisions related to digital assets within the current Income Tax Act. The bill explicitly states that separate taxation on virtual assets undermines the fairness and consistency of the tax system and cited the guidelines of U.S. financial regulatory authorities, which classify most digital assets as commodities rather than securities, as a key reference.

However, despite these widespread calls for abolition, tension remains high as tax authorities, including the National Tax Service (NTS), have already begun practical preparations for the implementation of the tax system next year as scheduled. The NTS Individual Taxation Bureau announced in late April a plan to establish a taxation infrastructure that will stably secure transaction data from major domestic exchanges and ensure the prompt enforcement of comprehensive income tax. In particular, the authorities are accelerating the development of an Artificial Intelligence (AI)-based verification system to precisely track virtual asset investment profits, intending to fully operate it by the end of this year, thus creating a direct clash between the National Assembly's decision on tax law revision and the authorities' administrative enforcement timeline.

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