South Korea should consider policy incentives that encourage crypto investors to use domestic exchanges before virtual-asset income taxation begins on Jan. 1, 2027, according to a Sept. 17 report from the National Assembly Budget Office.
The report argues that the new tax will be harder to enforce unless authorities improve their ability to identify taxable income and build systems that make reporting and filing more manageable for taxpayers. It also says the government needs to give clearer guidance well before the rules take effect.
Budget office highlights enforcement gaps
The report, titled Issues and Tasks for Taxing Virtual-Asset Income, says South Korea still faces practical limits in tracing and verifying crypto-related taxable income. It calls for stronger capacity at the National Tax Service to track virtual-asset transactions and review transaction records.
A central recommendation is to find ways to channel more activity onto domestic exchanges, where authorities would have easier access to trading data. The office said that would improve the government’s ability to secure the information needed to administer the tax once it comes into force.
Overseas platforms and OTC trades remain difficult to track
The budget office identified over-the-counter trading and use of overseas exchanges as major weak points for tax enforcement. It said special measures are needed to promote voluntary reporting by investors using those channels, especially when they trade on platforms in jurisdictions that do not participate in the Crypto-Asset Reporting Framework, or CARF.
Because those transactions may be harder for authorities to monitor directly, the report suggests that policy design should take account of where and how investors trade, rather than relying only on after-the-fact tax enforcement.
Japan cited as a possible model for incentives
As an international reference point, the report pointed to Japan, which plans to apply a separate 20% tax rate and permit three-year loss carryforwards for virtual-asset income generated through registered exchanges. The South Korean budget office did not say the same structure should be adopted outright, but said comparable incentives tied to domestic exchanges could make transaction histories much easier to identify.
The underlying idea is that favorable treatment for activity on registered local platforms could support compliance while reducing blind spots in tax administration.
Automated systems and clearer rules seen as essential
Beyond enforcement, the report says South Korea needs tax infrastructure linked directly to exchanges so investors do not have to manually sort through multiple trades to calculate acquisition costs, gains, or losses. Instead, those amounts should be computed automatically and connected to a filing process that simplifies tax reporting.
The office also called for sufficient advance guidance and public outreach to limit confusion in the early stage of implementation. It said the government should decide in advance which standards apply to different types of virtual-asset transactions, then communicate detailed interpretations through public notices, administrative guidance, and frequently asked questions.
Tax launch has been delayed three times
Taxation of virtual-asset income was added through a December 2020 amendment to the Income Tax Act, but implementation has since been postponed three times. Under the current schedule, the tax will apply to income from transfers and lending of virtual assets generated on or after Jan. 1, 2027.
According to the report, the remaining tasks before that date include improving identification of taxable income, building the necessary reporting infrastructure, setting tax standards for each transaction type, and deciding how much of trading losses should be recognized. Those issues now stand out as the next confirmed steps before the planned rollout.
Source: en.bloomingbit.io