National Assembly Budget Office: 'Incentives for Exchanges and Reporting System Needed Before Virtual Asset Taxation'

National Assembly Budget Office: "Incentives for Exchanges and Reporting System Needed Before Virtual Asset Taxation"

Publication of the report 'Issues and Challenges of Virtual Asset Income Taxation'

With the introduction of virtual asset taxation in January next year, a proposal has been made to prepare incentives that can encourage the use of domestic exchanges and to establish an automatic calculation and reporting system linked with exchanges.

The National Assembly Budget Office made this proposal in its report 'Issues and Challenges of Virtual Asset Income Taxation,' published on the 17th.

The National Assembly Budget Office stated that for stronger tax source management, the National Tax Service needs to enhance its own capabilities and concurrently review incentives for using domestic virtual asset exchanges to formalize tax sources.

Specifically, it proposed exploring ways to develop virtual asset transaction tracking and verification technologies, as well as to encourage voluntary reporting by users of overseas exchanges involved in over-the-counter (OTC) transactions or located in countries not complying with the information exchange system between countries (CARF).

Japan plans to apply a low separate taxation rate (20%) and carry-forward deductions (3 years) to virtual asset income earned through registered exchanges. The National Assembly Budget Office explained that if similar incentives are prepared in Korea to encourage the use of domestic exchanges, it would be easier to track transactions.

It also called for the establishment of infrastructure to reduce the burden on taxpayers of having to individually verify transaction details.

The National Assembly Budget Office stated that it is necessary to establish a system linked with exchanges that can automatically calculate and report acquisition costs and profits/losses, and to simultaneously provide prior guidance and publicity to reduce taxpayer confusion in the early stages of tax implementation.

Furthermore, it proposed that taxation standards for each transaction type should be clarified in advance.

The tax authorities stated that before the implementation of the tax system, they need to prepare specific interpretative standards using announcements, precedents, and frequently asked questions (FAQs) to guide taxpayers.

Taxation on virtual asset income was introduced through an amendment to the Income Tax Act in December 2020, but it has been postponed three times and is finally scheduled to be implemented for transfers and rentals starting January 1st next year.

The National Assembly Budget Office pointed out that before the full-scale implementation of taxation, issues such as limitations in tax source capture, establishment of tax infrastructure, taxation standards for various transaction types, and the scope of recognizing transaction losses are being raised.