Domestic Coin Market Shrinks: Democratic Party's Tepid Response to Tax Delay Raises Investor Discontent

The Democratic Party has not proposed any additional delays or abolitions regarding the taxation of digital assets. The People Power Party is pushing for the abolition of the tax and a delay until 2030. The industry expresses concerns about tax equity and market contraction.

As the government and the ruling Democratic Party lean towards implementing the taxation of digital assets (virtual assets) as scheduled in January next year, concerns among industry players and investors are growing.

The controversy over tax equity due to the abolition of the financial investment income tax remains unresolved, and with the institutional foundation for the digital asset market, such as the Digital Asset Basic Law, still not established, there are warnings that implementing the tax first could lead to investor exodus and further contraction of the domestic market. Investors' petition for the abolition of digital asset taxation submitted in May remains unanswered.

Government and Ruling Party Favor Tax Implementation Next Year

According to political circles on the 21st, the Democratic Party has not put forth any separate legislation or party stance regarding additional delays or abolitions of digital asset taxation. There have been no clear movements within the party leadership to reconsider the timing of the tax implementation.

An industry insider familiar with political affairs stated, "There is no significant atmosphere within the Democratic Party for discussions on delaying the tax again, and it appears that they are leaning towards implementing it as scheduled for now."

The government also plans to implement the tax from next year without any additional delays. In the tax reform plan announced this month, the timing of the tax has not been changed, and Deputy Prime Minister and Minister of Economy Kyun-Chul Koo stated in a report to the National Assembly's Finance and Economy Planning Committee last month, "We will implement the tax from next year, but we will address any necessary shortcomings later."

The National Tax Service is also accelerating its practical preparations. It is pushing ahead with a project to establish a 'virtual asset integrated analysis system' worth about 3 billion won, planning to analyze transaction histories and cash flows by taxpayer by linking data submitted by domestic exchanges with blockchain transaction information. This aims to proactively block tax evasion and asset concealment activities as well as detect unusual transactions.

People Power Party Counteracts with Abolition and Three-Year Delay Proposal

In contrast, the People Power Party is opposing the government's and ruling party's push and is launching a legislative offensive. People Power Party member Seon-Seok Song proposed a revision to the Income Tax Act in March to delete the taxation provisions on income from the transfer and lending of digital assets.

This bill was presented at the National Assembly's Finance and Economy Planning Committee's plenary meeting on the 29th of last month and was referred to the tax subcommittee. If this bill passes the plenary session, the legal basis for taxing digital asset income, scheduled to be implemented in 2027, will be completely nullified.

Following this, People Power Party member Seong-Guk Jeong proposed an amendment on the 10th to delay the tax implementation until 2030, three years later. The intention is to provide a grace period until investor protection measures and tax infrastructure are sufficiently matured if a complete abolition is difficult.

The People Power Party points out that imposing income tax only on digital assets while the financial investment income tax has been abolished contradicts tax equity among assets. They also emphasize that thorough verification must precede the establishment of an effective tax base for transactions through overseas exchanges and personal wallets.

Investor backlash is also intensifying. The 'Abolition of Digital Asset Taxation' petition submitted to the National Assembly in May received over 50,000 signatures and was referred to the Finance and Economy Planning Committee, but no specific review results have been released to date.

Tax Equity Controversy Persists... Industry Voices "Market Contraction Concerns"

Despite opposition from the opposition party and investors, the government maintains its stance to implement the tax as scheduled, and the Democratic Party shows no signs of additional delays, leading to growing dissatisfaction in the market. In particular, there are criticisms that the differing tax standards applied to digital assets and other investment assets violate equity.

Under the current tax law, a 20% income tax is imposed on annual income exceeding 2.5 million won obtained from the transfer or lending of digital assets. Including local income tax, the rate is 22%. In contrast, capital gains tax is not imposed on domestic listed stocks, except for major shareholders, and the financial investment tax has been abolished. This background continues the controversy over tax equity among investment assets ahead of the tax implementation.

Concerns are also raised about implementing the tax first without a sufficient institutional foundation to regulate the entire market. Comprehensive legislative discussions encompassing the issuance and distribution of digital assets, business entry requirements, disclosure systems, and stablecoin regulations are ongoing, but related bills have yet to pass through the National Assembly.

Industry insiders worry that if taxation is implemented without the legal status of the industry and institutional arrangements for investor protection being finalized, it could reduce investor participation in the market and further contract domestic trading.

A representative from a domestic digital asset exchange stated, "The domestic market is already contracting, and the business that exchanges can engage in is limited. If taxation is implemented under these circumstances, investor participation in the market will decrease, and trading will contract, making the domestic digital asset industry even more difficult."

Another industry insider pointed out, "While there is no clear policy or willingness to support market activation, pushing for taxation first is an approach that does not consider the realities of the industry. If taxation is implemented as it is, the likelihood of further acceleration of market contraction is high."