South Korea’s state-run Korea Institute of Public Finance has raised concerns over the fairness of taxing virtual assets, or cryptocurrencies. The issue is gaining urgency ahead of the planned start of the tax next year, as calls for another delay grow in both the industry and political circles.

According to government officials on October 13, the institute shared the status of South Korea’s virtual-asset taxation at the Korea-China International Tax Symposium held in Shanghai last month. Participants included Lee Young, president of the Korea Institute of Public Finance, as well as the Research Institute of Taxation Science under China’s State Taxation Administration, the Shanghai Tax Bureau and the Tax Science Research Institute of the Guangdong Provincial Tax Service.

At the symposium, the institute identified tax fairness as a key challenge for South Korea’s virtual-asset tax regime. Its point was that taxing only crypto after the financial investment income tax was abolished would inevitably spark questions over equitable treatment.

To improve fairness, the institute proposed raising the basic deduction and allowing loss carryforwards. It also noted at the symposium that South Korea’s basic deduction for virtual-asset taxation is 2.5 million won, compared with about 5.3 million won in the U.K. and about 4.13 million won in Germany. A loss carryforward allows losses from previous investments to be deducted from profits in the following year when calculating taxes.

The institute also cited limits in the system for collecting tax information. In particular, it said differing implementation schedules among countries taking part in the OECD’s Crypto-Asset Reporting Framework, or CARF, could create blind spots if South Korea begins taxation next year. Hong Kong, Singapore and the United Arab Emirates are set to adopt CARF in 2028, while the U.S. plans to do so in 2029.

It also pointed to the need to strengthen tax-administration infrastructure. The implication is that tax authorities still lack sufficient systems to accurately identify virtual-asset transaction histories and acquisition costs. The institute also referred to bringing decentralized exchanges, or DEXs, into the regulatory framework as another issue authorities need to address, given the difficulty of tracking transactions on those platforms.

Momentum Builds for Delay as Investors Warn of 'Exodus'

Calls to postpone the tax are mounting in and beyond the industry. National Assembly petitions calling for the tax to be scrapped and for a further two-year delay have each already drawn more than 50,000 signatures and have been referred to the relevant standing committee. Some crypto investors have also been staging truck protests since October 12 near the National Assembly and the Government Complex Seoul, urging a delay.

The political sphere is no different. Kweon Seong-dong, floor leader of the People Power Party, met Deputy Prime Minister Lee Hyoung-il late last month and asked for the tax to be postponed. In the Democratic Party as well, lawmakers including Min Byoung-dug and Park Min-kyu have recently raised the need for a delay. Lee also softened his stance during a parliamentary audit earlier this month, saying authorities would "broadly gather a wide range of opinions" on the planned rollout.

There are also concerns that pressing ahead with the tax could trigger an exodus of crypto capital from South Korea. Tiger Research, a domestic Web3 research firm, recently surveyed 2,423 South Korean crypto investors and found that 69.7% said they would reduce or halt their crypto investments if the tax takes effect.

Tiger Research said trading volume at South Korea’s three biggest crypto exchanges — Upbit, Bithumb and Coinone — could fall by nearly 30% next year, to about 602 trillion won from about 860 trillion won this year, if the tax is implemented. Ahn Kwang-ho, a researcher at Tiger Research, said implementing the tax before reporting standards and filing systems are fully in place could shrink domestic trading while pushing some activity to overseas exchanges and private wallets. That would scatter the transaction data tax authorities need to verify, making it harder to secure tax revenue and supervise the market.