[Weekly Review] Virtual Asset Taxation "As Scheduled"... Growth Rate Forecast Raised to 4.0% This Year

與, "Top 2% Subject to Comprehensive Real Estate Tax" Adjustment
Opposition, "Cap on Official Price Increase... Within 5%"
Government, Vehicle Acquisition Tax Cut Extended 6 Months... Accelerating Economic Recovery

[Sejong=Asia Economy Reporter Moon Chaeseok] The government has firmly stated that it will proceed with the taxation of virtual assets, which has drawn significant investor dissatisfaction, as scheduled from January 1 next year. The ruling party has introduced real estate measures that impose comprehensive real estate tax on the top 2% based on publicly announced prices and expand the property tax reduction criteria for single-homeowners from houses valued at 600 million won or less to those valued at 900 million won or less.

Meanwhile, the Bank of Korea raised its economic growth forecast for this year to 4.0%, reflecting the gradual recovery of the Korean economy from the COVID-19 shock. The government decided to extend the 30% reduction in the individual consumption tax on automobiles until the end of the year to sustain the recovery of the real economy.

Virtual Asset Taxation Enforced... Financial Services Commission Supervises, Ministry of Science and ICT Promotes

On the 28th, the government held a vice-ministerial meeting of related ministries chaired by Koo Yoon-cheol, Director of the Office for Government Policy Coordination, at the Government Complex Seoul, and announced the 'Virtual Asset Transaction Management Plan.' The government decided to enforce taxation as scheduled from January next year and designated the Financial Services Commission as the main supervisory agency. If virtual asset investment income exceeds 2.5 million won annually, 22% tax will be imposed on the excess amount.

The government’s decision to proceed with taxation as planned is to uphold the taxation principle that 'where there is income, there is tax.' Although some in the political sphere advocated for a postponement, the government decided to push forward according to principle. Last year, when comprehensive taxation on financial income was implemented, the government initially planned to provide a 20 million won deduction from 2023 but raised it to 50 million won following public backlash. It was heavily criticized for revising tax policies based on public opinion without principles.

Regulations on exchanges have also been strengthened. According to the Specific Financial Information Act (Special Act on Reporting and Using Specified Financial Transaction Information), which came into effect in March, exchanges must complete business registration by September 24. Exchanges are prohibited from directly issuing coins and mediating or brokering their trading or exchange. Employees of exchanges are also forbidden from trading coins issued by their own companies. The proportion of cold wallets (wallets not connected to the internet) for storage will be increased to manage hacking risks.

Ruling Party: Comprehensive Real Estate Tax on Top 2%... Capital Gains Tax Exemption Threshold Raised from 900 Million to 1.2 Billion Won

Yoon Ho-jung, the floor leader of the Democratic Party of Korea, and Kim Jin-pyo, the chairman of the Real Estate Special Committee, are attending and conversing at the policy members' meeting on real estate held at the National Assembly on the 27th. Photo by Yoon Dong-ju doso7@

The Democratic Party of Korea announced on the 27th a plan to ease the comprehensive real estate tax by imposing it only on the top 2% based on publicly announced prices. The property tax reduction criteria for single-homeowners will be expanded from houses valued at 600 million won or less to those valued at 900 million won or less, and the capital gains tax exemption threshold will also be raised. The registration of new housing rental businesses (purchase rental) will be abolished.

Instead of the current fixed amount (900 million won) for imposing the comprehensive real estate tax, the government plans to change it to a rate and raise it to the top 2% (approximately 1.2 billion won). The capital gains tax exemption threshold for single-homeowners will be raised from the current 900 million won to 1.2 billion won. The special property tax reduction for single-homeowners will be expanded from houses valued at 600 million won or less to those valued at 900 million won or less.

Additionally, the government will pursue easing housing loan regulations. The loan-to-value ratio (LTV) preferential rate for the homeless will be increased by up to 20 percentage points, raising the maximum LTV to 70%. The housing rental business system will abolish new registrations for all types of purchase rental housing. To encourage listings in the market, existing businesses will only be allowed the current capital gains tax exemption benefit for six months after deregistration, after which normal taxation will apply.

The opposition party, three days earlier on the 24th, proposed measures including ▲introducing a cap on the increase of publicly announced real estate prices to within 5% of the previous year’s rate ▲raising the comprehensive real estate tax reduction threshold for single-homeowners from 900 million won to 1.2 billion won ▲freezing the comprehensive real estate tax fair market value ratio at last year’s level of 90% ▲increasing the deduction rate for elderly and long-term single-homeowners up to 90%.

Bank of Korea: "Exports, Facility Investment, and Domestic Demand Recovering"... Possibility of Interest Rate Hike Within the Year

Lee Ju-yeol, Governor of the Bank of Korea, presides over the Monetary Policy Committee plenary meeting and strikes the gavel at the Bank of Korea in Jung-gu, Seoul, on the morning of the 27th. (Photo by Yonhap News)

On the 27th, the Bank of Korea sharply raised its economic growth forecast for this year from 3.0% three months ago to 4.0%. The inflation forecast for this year was also adjusted upward by 0.5 percentage points from 1.3% to 1.8%. Although the base interest rate was held steady at 0.50% per annum, many expect an increased possibility of an interest rate hike within the year given the raised growth and inflation forecasts.

Bank of Korea Governor Lee Ju-yeol said at a press conference after the Monetary Policy Committee meeting that day, "Going forward, the domestic economy is expected to strengthen its recovery supported by favorable exports, investment, and improved private consumption." This is a much more positive assessment of the economy compared to last month when he mentioned "high uncertainty regarding the speed of recovery."

If herd immunity is achieved as the government aims by November, there is a possibility of raising interest rates. Raising rates could increase concerns about household debt. Governor Lee said, "We will maintain a monetary easing stance, but during this process, we will carefully monitor the economic conditions of major countries and pay close attention to financial imbalances such as capital concentration in asset markets and the accumulation of household debt."

Following Bank of Korea’s Announcement... Government Extends 30% Reduction in Automobile Individual Consumption Tax

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, presides over the 36th Emergency Economic Central Countermeasures Headquarters meeting held at the Government Seoul Office on the 28th. (Photo by Yonhap News)

Just one day after the Bank of Korea raised its growth forecast, on the 28th, the government held the '36th Emergency Economic Central Countermeasures Headquarters Meeting' and decided to extend the 30% reduction in the individual consumption tax on automobiles (from 5% to 3.5%), originally scheduled to end next month, until the end of the year. Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki chaired the meeting and said, "The reduction in the individual consumption tax on passenger cars, which has supported domestic automobile sales and domestic demand, was scheduled to end next month, but we decided to extend it for six months until the end of the year."

The government plans to present an overall strategy for revitalizing domestic demand and economic recovery in the second half economic policy direction (HaGyeongJeong) to be announced in mid-next month, but it intends to take preemptive measures to overcome immediate crises. It also announced measures such as ▲implementing special employment incentives (youth employment) ▲extending the designation period of industrial crisis areas by two years for five regions including Ulsan Dong-gu, Geoje, Changwon Jinhae-gu, Tongyeong-Goseong, and Mokpo-Yeongam-Haenam (to revive the shipbuilding industry).

In addition to economic recovery measures before HaGyeongJeong, discussions were held to strengthen future growth engines after overcoming the COVID-19 pandemic. A representative agenda is the activation of youth entrepreneurship, with plans to establish a dedicated program supporting 1,000 first-time young entrepreneurs with 10 to 20 million won each. Earlier on the 20th, Deputy Prime Minister Hong visited VR specialist company VentavR and mentioned that the youth expanded unemployment rate was 25.1% according to last month’s Statistics Korea employment trends, stating, "The government is actively implementing special support measures to enhance the private sector’s capacity to create good youth jobs and to expand youth employment and entrepreneurship."