A report commissioned by South Korea’s National Tax Service has recommended lifting the annual basic deduction for virtual-asset taxation to 7.5 million won, up from the current 2.5 million won set under the law due to take effect in January. The review frames the proposal as a way to lower enforcement costs while reducing the burden on smaller retail investors.

The recommendation comes as South Korea prepares to begin taxing crypto next year and as debate over the policy has intensified. Any change to the deduction would require an amendment to the income tax law, but the issue is drawing attention ahead of the government’s 2027 tax revision plan, expected next month.

Why the report wants a higher threshold

The commissioned report said the current 2.5 million won deduction may not be efficient if most taxpayers subject to the levy generate only small amounts of taxable income. In those cases, it argued, the revenue collected could be limited compared with the administrative effort required to assess and enforce the tax.

Its proposed solution is to nearly triple the deduction to 7.5 million won, or about $5,400. According to the report, that option deserves review because it could narrow the pool of taxpayers to those more likely to produce meaningful taxable gains, improving the practical return from enforcement.

Retail-heavy market shaped the recommendation

The report based its recommendation on the composition of South Korea’s crypto market, which it described as dominated by small retail holders. Citing a Financial Services Commission survey of virtual-asset service providers covering the second half of 2025, it said only around 10% of about 11 million investors on domestic exchanges had invested 10 million won or more.

That amounts to roughly 1.12 million people, implying that nine out of 10 crypto investors held less than 10 million won in assets. The report used that data to support the view that a low deduction threshold would capture large numbers of smaller investors while offering only limited fiscal benefit.

An alternative to changing the deduction

The report also suggested another way to reduce the number of taxpayers caught by the new regime without directly changing the basic deduction. Under the revised income tax law scheduled to take effect next year, if the actual purchase price of a virtual asset cannot be easily confirmed, up to 50% of the transfer price can be treated as the acquisition cost.

The report said tax efficiency might improve if that deemed acquisition-cost ratio were raised to 75% for virtual assets with a total transfer value of 10 million won or less. It said both approaches would have a similar core effect by reducing the number of people subject to tax, with the difference being whether the system changes the minimum taxable threshold itself or adjusts the cost-recognition formula.

Backlash over fairness and the government’s stance

The debate is unfolding alongside growing criticism over tax fairness. Opponents argue that pressing ahead with crypto taxation after the financial investment income tax on stock-investment gains was scrapped creates an imbalance between asset classes. A public petition calling for the abolition of virtual-asset taxation has attracted more than 58,000 supporters and has been referred to the National Assembly.

Oh Moon-sung, a professor in the tax accounting department at Hanyang Women’s University and a former president of the Korean Association of Tax Policy, said the repeal of the financial investment income tax was the main reason opposition to crypto taxation had intensified. He also said the immediate revenue effect would likely be small even if the government proceeds now.

What comes next before the 2027 launch

For now, the government has said the January rollout will go ahead. Deputy Prime Minister and Finance Minister Koo Yun-cheol told the National Assembly’s finance and economy committee on July 29 that virtual-asset taxation would proceed next year as scheduled, adding that the government would implement the system first and supplement necessary parts later.

Because changing the deduction or adopting a similar adjustment would require amending the income tax law, market participants are watching the government’s 2027 tax revision plan due next month for signs of whether the proposal will be reflected. Meanwhile, the National Tax Service has created a new Digital Asset General Division as part of its preparation for the launch.

Source: en.bloomingbit.io