2021 Tax Postponement for One Year Income Tax Act Amendment
Suspected Full Disposal Before 'Coin Real-Name System' Implementation
FIU Classifies as 'Suspicious Transaction' and Shares Data with Investigative Agencies
Kim Nam-guk, a member of the Democratic Party of Korea who reported assets worth over 1.2 billion KRW last year, is known to have held tens of billions of won in cryptocurrency but sold all of it in early last year, just before the implementation of the cryptocurrency real-name trading system (Travel Rule).
While the mere possession of cryptocurrency or the failure to report it?since it was not subject to public officials' asset reporting?cannot be considered problematic, controversy has grown after it was revealed that Kim co-proposed a bill in 2021 that partially deducted income tax on virtual asset income and postponed the imposition of income tax for one year.
Regarding related reports, Kim acknowledged holding coins, stating that he invested using proceeds from stock sales, but denied reports suggesting that he hid the coins he held somewhere. On the matter of co-proposing an amendment to the Income Tax Act from which he could directly benefit, he stated that the intention was "not to hastily impose taxation but to allow a preparation period."
According to the National Assembly Legislative Information System on the 6th, Kim, along with nine other lawmakers including No Woong-rae from the same party, proposed the "Partial Amendment to the Income Tax Act" on July 6, 2021.
The amendment co-proposed by Kim at the time included provisions that, from January 1, 2022, a 20% income tax imposed on income generated from the transfer or lending of virtual assets would be ▲classified as financial investment income and combined with income from other financial products for a deduction of up to 50 million KRW, and ▲the taxation timing on virtual assets would be postponed by one year, taxing only those who transfer or lend virtual assets from January 1, 2023, onward.
The bill, bundled with other Income Tax Act amendments, was incorporated into the National Assembly Planning and Finance Committee chairman's alternative bill in December 2021 and passed, effectively deferring the taxation of virtual asset income to January 2023. Subsequently, in December last year, another amendment was passed delaying the taxation timing by two more years, currently postponing taxation until 2025.
In political circles, criticism has arisen that Kim, who held a large amount of coins, proposed an amendment from which he could directly benefit, raising concerns about a potential "conflict of interest." Yoon Hee-seok, spokesperson for the People Power Party, pointed out, "Kim's name as a co-proposer raises the possibility of a conflict of interest and requires a clear explanation."
In response to such criticism, Kim said in an interview with a media outlet, "Since regulations and methods were unclear, the intention was to allow a preparation period rather than hastily imposing taxation."
The day before, Chosun Ilbo reported that Kim held about 800,000 WEMIX coins in January and February last year, with a peak value of around 6 billion KRW. It also raised the possibility of concealment, stating that Kim withdrew all the coins between late February and early March last year, just before the real-name system was implemented.
In response, Kim admitted to holding coins in a statement, saying, "I have repeatedly disclosed that I invested in cryptocurrency since 2016 through live broadcasts and YouTube during my time as a lawyer."
He explained, "I have always meticulously reported assets according to current laws, but cryptocurrency was excluded because it was not subject to reporting."
Regarding the source of funds for coin purchases, he said, "The principal invested in coins came from proceeds of stocks I held and sold," and added, "Chosun Ilbo reported as if I transferred the coins somewhere to conceal them, but that report is clearly false."
He further stated, "The quantity of cryptocurrency held and transaction timings are sensitive personal information that is not easy to know precisely. I believe there is illegality in how such detailed transaction information was leaked. I will actively pursue legal action, including filing complaints with the Press Arbitration Commission, against baseless reports in the future."
Meanwhile, another media outlet reported the day before that the Financial Intelligence Unit (FIU), which received reports from cryptocurrency exchanges about Kim's transactions, analyzed the transaction details, classified them as "suspicious transactions," and handed related materials to investigative agencies last year. There were even reports that the prosecution requested a warrant for the related accounts from the court, but the court dismissed it.
The ruling party harshly criticized Kim over these allegations and demanded disclosure of the investment background and circumstances.
Jeon Ju-hye, spokesperson for the People Power Party floor, said in a statement the day before, "Kim Nam-guk, known as 'Lee Jae-myung's kid,' resembles Lee Jae-myung too much, who, regardless of the party and supporters' disappointment after the presidential election defeat, was busy with defense stock investments."
She criticized, "During the last presidential election, Kim was pursuing personal gain behind the scenes while ignoring supporters. What was he doing during the one-year grace period for the cryptocurrency real-name system, and why did he withdraw all coins just before its implementation?"
She added, "Looking at Kim's recently disclosed asset change report, there are no large cash deposits or withdrawals, nor any report of virtual assets. If he liquidated the WEMIX coins he held, where is that money now? Or did he purchase other coins? A reasonable explanation is needed."
The WEMIX coins that Kim held and disposed of were created by Wemade, a game company that developed titles such as "Legend of Mir." The coin rose to 237,000 KRW in November 2021 but fell to 4,900 KRW in early last year. After being delisted by the Digital Asset Exchange Association (DAXA) on December 8 last year, its price dropped to 700 KRW and was removed from major domestic and international cryptocurrency exchanges. However, it was relisted on some exchanges like Coinone and is currently trading around 1,400 KRW.
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