As one of the most active markets in terms of actual cryptocurrency circulation, South Korea is closely watched by financial technology analysts. The use of digital currency wallets has been embraced by South Korean consumers, and financial regulators have certainly taken notice, which is probably why legislative proposals to impose taxes on cryptocurrency transactions were recently announced.
Economist from the prestigious Yonsei University are concerned about the impact that these taxation proposals may have on the regional cryptocurrency market. Thus far, the proposals are largely centered on assessing taxes from capital gains typically associated with trading; in the future, however, this could extend to the value of cryptocurrency held. A South Korean woman who uses to her Samsung smartphone to pay for coffee and snacks with Bitcoin, for example, could be assessed taxes on the currency exchange value of her digital wallet at the end of a taxation period.
Supporters of cryptocurrency adoption in South Korea also think that taxing transactions at this time would only result in a backlash by consumers; to this effect, they can always turn to the won or the United States dollar, two strong and stable fiat currencies commonly used in the region. Taxing Bitcoin and other tokens now would run counter to the financial philosophy in countries such as Portugal, where the use of digital currencies is encouraged and free from taxation, at least for the time being. There is no question that cryptocurrency tokens will one day be subject to taxation, but this is not the time to do it.
Other economists believe that taxation on digital currencies is inevitable. While this could prove to be beneficial to the South Korean economy, the concerns are related to the timing of the proposals. Most analysts think that the cryptocurrency market has not matured to the point of taxation; doing so at an early point in the game could substantially reduce the pace of expansion. It is not surprising to learn that central banks and financial regulators are looking at digital currencies as a potential source of tax revenues; after all, virtually all sovereign economies have been hit pretty hard by the COVID-19 pandemic.