South Korea is caught between two crypto realities: lawmakers pushing to scrap a planned crypto capital-gains tax, and the country’s tax authority investing in an AI system to hunt down unreported crypto income.
What’s changing in tax policy
- On March 18, People Power Party floor leader Song Eon-Seok introduced amendments to the Income Tax Act that would eliminate the planned taxation of digital-asset gains. Under current law, crypto profits were slated to be taxed at 20% beginning in 2027 — about 22% once local levies are included.
- Song and other proponents argue the tax is unfair because South Korea already treats digital assets as commodities under its value-added tax (VAT) regime. Imposing an income tax on top of VAT, they say, amounts to double taxation.
- The repeal push gained political momentum after lawmakers recently abolished the financial investment income tax for stock trading, a move framed as support for traditional capital markets and retail investors. Opponents of the crypto tax say keeping it only for digital assets would create an uneven playing field.
- Lawmakers also cite enforcement headaches tied to foreign investors: officials say chasing overseas market participants would be administratively costly and could outweigh any revenue collected. The bill’s stated aim is to simplify rules and keep markets open.
Tax authority builds an AI watchdog
- At the same time, South Korea’s National Tax Service (NTS) is spending roughly 3 billion won (about $2 million) to build an AI-powered platform to detect unreported cryptocurrency transactions. The system is expected to be operational before the end of 2026.
- That creates a striking tension: a sophisticated surveillance tool designed to catch crypto tax evaders is being developed while a major political force seeks to abolish the tax the tool would enforce.
Tighter policing of privacy coins and seized assets
- Law enforcement is also stepping up scrutiny of privacy-focused “dark coins.” The National Police Agency has rolled out new protocols requiring dedicated digital wallets, software-based storage solutions, and stricter procedures for handling seized crypto.
- A police official noted how asset custody has evolved — from physical warehouses to managing wallet addresses and private keys — and said procedures have been updated to reflect that reality.
New consumer-protection and exchange duties
- Regulators are pushing exchanges to play a more active role in fraud prevention. Beginning in October, crypto trading platforms in South Korea will be required to scan transactions for signs of fraud, freeze suspicious transfers, assist victims in recovering lost funds, and share pertinent information with investigative authorities, the Financial Services Commission confirmed.
Why it matters
- The juxtaposition of political efforts to eliminate crypto taxes and state investments in surveillance tools highlights the evolving regulatory tug-of-war over digital assets in South Korea. Even if the tax is repealed, the expanded enforcement and compliance infrastructure — from AI-driven tax analytics to stricter seizure protocols and mandatory exchange monitoring — signals a long-term move toward tighter oversight of the market.
Featured image from Pexels, chart from TradingView.
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