Because of high cryptocurrency usage and adoption rates, Asian countries like China, Japan, and South Korea, where few of the first to introduce regulations meant to control the growing industry. Digital currency enthusiasts in South Korea believe that the current regulations are bound to restrict the development of the crypto industry. Because of this, several South Korean lawmakers have urged the government to improve the regulatory framework and restrictions associated with both digital currencies and blockchain technology.
According to the lawmakers, the current framework is not only conservative, but also damaging to the social and economic potential of the market. The announcement was made via a speech held at the South Korean National Assembly, where Min Byung-doo, who is a representative of the Democratic Party, mentioned that: “The government said it would lower regulation barriers, but cryptocurrency and blockchain are not subject to this, which is a contradiction. It is now time to review previous regulations and ease them according to needs.”
Min also mentioned that he will discuss about this issue with the South Korean President, granted that he has already spoken to several presidential advisors. Ethereum’s Vitalik Buterin also spoke in front of the National Assembly. Similarly to the democratic representative, he too, has urged the government to deregulate the industry, since the current approach can only be categorized as counter-intuitive.
To put things better into perspective, at this moment in time, the government is involved in several blockchain projects. A massive increase in budgeting for the blockchain economy in 2019, will likely increase the number of blockchain-related initiatives being carried out throughout the country. However, to help facilitate growth, the regulatory framework has to be on the same line with these projects. If not, excessive compliance procedures, licensing requirements and tax reporting expectations, can have a significant negative impact on the industry.
Cryptocurrencies remain under-review, since the South Korean government has banned Initial Coin Offerings, and has set up a task force meant to investigate crypto-based illegal activity.
Additionally, back in April 2018, South Korea announced its plans to develop a digital currency taxation framework, which would become operational in 2019. At that time, the SK Ministry of Strategy and Finance stated that it is thinking about introducing a capital gains tax alongside income taxes for cryptocurrency adopters and investors. A ministry-issued report claims that: ‘In order to tax the income accruing from a virtual currency transaction, it is necessary to amend the income tax law to add it to the category of taxable objects.” Currently, there are reports that a 10% tax will be imposed on bitcoin-based incomes, but at this time, crypto remains tax-free.
For a while, cryptocurrency and blockchain businesses were regarded as venture firms. This aspect granted them a couple of tax perks alongside several state-sponsored financial incentives, meant to encourage innovation and the development of start-ups. Afterwards, the Ministry for Small and Medium Enterprises and Startups asked for a law revision that would remove crypto and blockchain firms from the list of venture firms. In other words, the plan was to double taxes and remove acquisition tax reductions. Speaking of the South Korean crypto market, it is important to point out that the country’s central bank has stated that it is currently not considering the development of a CBDC, granted that its studies showcase a project like this lacks feasibility and can’t guarantee financial stability.
Based on everything that has been outlined so far, over the next couple of months, we may get to see an improvement of the South Korean blockchain and cryptocurrency markets, as long as the government accepts to introduce more lenient regulation.
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