Worrying about the stringent tax laws, South Korean economists say that crypto’s growth can go down.
The South Korean government recently announced that they intend to tax cryptocurrencies at rates up to 20%. They were keen to legitimize the sector for a long time, but the current financial crisis appeared as the perfect time for the step. Sung Tae-Yoon, a Korean Yonsei University economist, expressed his concerns and warned that this tax imposition might slow down the technology’s emerging market. This was according to the Korean Times report on June 21.
The cryptocurrency market has been tax-exempt for a very long time in almost all the countries where the users exist. Although the market is very volatile and fast-growing, even experts have believed that accepting the various virtual currencies as recognized assets is subject to regulations, and the market is still nascent.
Supporting this, Sung called the decision “premature” because taxing cryptocurrencies as capital gains are not viable when the technology is in its infant stages. Therefore, he believes that the step would prevent the market from flourishing in South Korea to a great extent. Adding to this, he said that cryptocurrencies couldn’t be considered as universal assets like traditional paper currencies in general.
However, on the other hand, opposition economists from the Korean University, like Kim Jin-ill, strongly believe that the regulation is very essential even if the growth of the technology is hampered. They think that although taxation will hamper short-term growth, it will control many frauds and financial scams in the country. Some active economists are of the view that these tax impositions are due to the financial uncertainties caused by the COVID-19 Pandemic.
Some also believe that the Korean government has further plans to tax various other commodities after the digital currencies. Hong Nam-Ki, the Korean finance minister, said that the government would be reforming the taxation system by introducing new kinds of taxes, like the digital tax on some IT companies like Amazon and Google, for providing their IT services in South Korea.
Kim also said that the steps could block the short-term growth of several markets, but it is currently essential to regulate them. To this, he added that these are the most suitable ways to bring the current state of the financial crisis in control.
Giving an example, he discussed a failure involving commercial banks’ mis-selling of derivative-linked funds in the previous year, which clearly shows how important these regulations are in the financial industry.
The decision recognizes crypto as assets or goods instead of an actual currency. This is the reason that the decision is still in progress. However, chances prevail that the financial authorities of South Korea will follow the footsteps of the world’s leading financial powerhouses like Japan and the US.
The USA recognizes digital cryptocurrencies like Bitcoin as financial assets and imposes taxes on the revenue generated from its transactions. Similarly, Japanese financial authorities have also applied a tax rate of 55% on transactions that involve revenues from cryptocurrencies.