Does Virtual Asset Tax Exemption of 50 Million KRW Help the Economy Like Stocks? Political Controversy Surrounding It

Verification of Ruling and Opposition Presidential Candidates' Pledge for Tax Exemption on Virtual Asset Investment Income

[Sejong=Asia Economy Reporter Moon Chaeseok] Multiple presidential candidates from both ruling and opposition parties have simultaneously proposed pledges to expand tax exemption benefits on virtual asset investment income. Since stock investment income is exempt from tax up to 50 million won, they plan to extend the same benefit to virtual assets, although there are opposing views against raising the tax exemption limit.

'Coin = Stock?'... "Up to 50 million won tax exemption & 5-year loss carryforward deduction"

According to the Ministry of Economy and Finance on the 23rd, from next year, individuals who earn income exceeding 2.5 million won (basic deduction amount) from virtual asset investments will have to pay taxes at a rate of 20%. For example, a person who made a 10 million won profit from Bitcoin must pay 1.5 million won in taxes, which is 20% of the remaining 7.5 million won after deducting the 2.5 million won exemption. Presidential candidates have expressed intentions to raise the deduction limit and expand tax exemption benefits on virtual asset investment income.

Yoon Seok-yeol, the People Power Party presidential candidate, announced a pledge to raise the virtual asset deduction amount to 50 million won, the same as for stocks. Regarding the timing of virtual asset taxation, he also stated a policy to maintain the principle of "preparation first, taxation later," which is interpreted as leaving room to postpone the taxation timing if the related infrastructure is not ready.

Lee Jae-myung, the Democratic Party presidential candidate, also declared plans to raise the virtual asset deduction amount to 50 million won. He pledged to introduce a loss carryforward deduction system allowing virtual asset investment losses to be carried forward for five years, similar to stocks. This means that if an investor incurs losses in a specific year, those losses can be deducted from income earned in the following five years before taxation. For example, if an investor loses 50 million won in Bitcoin investment next year and then earns 100 million won the following year, the investor will only pay taxes on 47.5 million won, which is the 100 million won minus the past loss of 50 million won and the basic deduction of 2.5 million won. If the deduction amount rises to 50 million won, the income is entirely excluded from taxation.

Ahn Cheol-soo, the People Party presidential candidate, has not officially announced any virtual asset-related pledges yet, but in May last year at the Supreme Council meeting, he mentioned the need to consider taxing only high profits above a certain amount. At that time, Ahn referred to the stock capital gains tax standards for virtual asset taxation, which is interpreted as keeping the basic deduction amount of 50 million won in mind. Shim Sang-jung, the Justice Party presidential candidate, is the only one who insists that the virtual asset deduction amount should remain at 2.5 million won and that virtual asset taxation should start immediately from next year.

Investors Welcome but Government Says "Different Nature from Stocks"

Individual investors generally welcome the proposals. Most investors perceive stocks and virtual assets as similar financial investment instruments and believe that institutional benefits should be equally applied. Some investors have even argued through past Blue House petitions that the lower tax exemption limit for virtual assets compared to stocks constitutes "tax discrimination."

On the other hand, the government fundamentally holds the position that stocks and virtual assets should be treated differently. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at the National Assembly’s Planning and Finance Committee audit last year, "Virtual assets are simple intangible assets with economic value, whereas financial investment income is productive financial capital that benefits our economy, so the two assets have different natures." He added, "The basic deduction for other assets is all 2.5 million won, and only financial investment income receives a generous deduction up to 50 million won."

This means that the virtual asset deduction amount aligns with other assets except stocks, so there is no reason to provide additional benefits to virtual assets. According to international accounting standards, virtual assets are treated as intangible assets or inventory assets, not financial assets like stocks. There is also an argument that it is difficult to equate stock investments, which contribute to corporate growth, with virtual asset investments, which are highly speculative. The government holds the view that there is no policy basis or justification to specially foster the virtual asset market like the stock market.

Criticism is also mounting against the 'tax populism' behavior of changing tax systems according to public opinion. Virtual asset taxation has already been postponed twice?from October last year to January this year, and then to January next year?due to political demands mindful of investors in their 20s and 30s. If the tax exemption limit is raised here, most small investors will continue to be exempt from taxes on virtual asset investment income.

However, there are also arguments that tax exemption benefits should be expanded because virtual assets are a means by which young people with limited financial resources can relatively easily invest in assets. Voices are emerging that from the investor’s perspective, the interpretation of financial assets should be proactively broadened beyond international accounting standards. Ultimately, how virtual assets are classified will become a key issue in the future reform of the virtual asset taxation system.