South Korea’s crypto community is raising alarms over the impending 20% tax on crypto gains, expressing concerns that it may drive away investors and potentially harm the market.

The South Korean Ministry of Economy and Finance plans to impose a 20% tax on crypto gains exceeding the basic deduction of 2.5 million won (around $1,800), plus an additional 2% local income tax. Initially planned for 2021, the tax’s implementation has been repeatedly postponed and is now scheduled for 2025. Domestic exchanges like Upbit, Bithumb, and Coinone argue that trading volumes will significantly drop once the tax is enforced.

These exchanges highlight the disparity in financial investment income tax, where traditional instruments like stocks, bonds, and funds are only taxed on gains above $36,250. In contrast, the crypto deduction is merely $1,800, making nearly all crypto investors liable.

“The 20% tax will deter investors,” said an anonymous spokesperson from a crypto exchange. “Many exchanges will probably shut down next year if the tax is implemented as scheduled.”

Additionally, South Korea is set to implement the Virtual Asset User Protection Act on the 19th of this month. This act will subject financial authorities to scrutinize the appropriateness of currently traded coins. As reported earlier, South Korea’s financial regulator is establishing a system to monitor unusual crypto trading, urging exchanges to provide internal data. This system targets trades outside normal volume and price ranges, large transactions, and unusually delayed executions.

Matt Younghoon Mok, senior foreign attorney and partner at Lee & Ko in Seoul, noted that this could pose significant challenges for altcoins that cannot promptly meet regulatory standards.

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