By Tolu Okuwoga
Amid the ongoing controversy surrounding virtual asset taxation in the country, South Korea’s Financial Authority recently proclaimed non-fungible tokens (NFT) as taxable. On Tuesday, The Financial Services Commission (FSC) of South Korea, announced that it would start taxing NFTs.
According to The Korea Herald, from January next year, this tax law amendment would impose a 20% tax on income from virtual assets that exceed 2.5 million won ($2,102).
Proposed Tax On NFTs
Vice-Chairman of the FSC, Doh Kyu-sang, said that NFTs are virtual assets under the current Act on the Specified Financial Transaction Information. And therefore, the government is entitled to collect taxes on them. “Under the law, any income earned from purchasing and selling virtual assets is subject to “other incomes” and subject to taxation.”
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The FSC’s announcement, however, differs from its earlier statement. A guidance report from the Financial Action Task Force (FATF) stated that “NFT, or crypto-collectibles, depending on their characteristics are generally not considered to be [Virtual Assets].” Based on this guideline, the FSC publicly stated that it would not regulate NFTs.
Finance Minister Hong Nam-ki also said last month that there was still some uncertainty about whether or not NFTs fall under virtual assets. His opinion was, “NFTs do not belong to virtual assets yet.”
Park Sung-Joon, head of Blockchain Research Center at Dongguk University, spoke on the contradiction.
“In the situation where the financial authorities are contradicting each other, it is confusing for market players of virtual assets to know whether they must pay taxes or not,” he said.
He also compared the proposed tax on NFT to the tax rates of real assets. According to the law, owners of virtual assets must pay a 20% tax on all NFT income above 2.5 million won. In comparison, owners of actual paintings pay a 22% tax on income above 60 million won.
According to Park, if the authorities must impose taxes on NFTs, the rates should be similar to real assets. There is no reason for heavier taxation on NFTs.
Crypto Tax In South Korea
The South Korean NFT tax law follows the same trails as the proposed tax on cryptocurrencies. In 2020, lawmakers came up with controversial taxation on income from investing in cryptocurrencies.
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Similar to the NFT tax law, this law also imposes a 20% levy on cryptocurrency gains above 2.5 million won. The law was to take effect from January 2022. However, lawmakers from The opposition People Power Party are pushing for a one-year extension. They are also advocating for tax rates adjustment in line with the proposed Financial Investment Income Tax regime.
Featured image by Skeli on Unsplash