[Edaily Reporter Choi Hoon Gil ] The Democratic Party of Korea and the Ministry of Economy and Finance have agreed to implement taxation on digital assets (virtual assets) as originally proposed starting next January. With the National Tax Service having begun preparations for the official notice—starting with its first advisory committee meeting on the 24th—controversy is expected over the specific details. The main points of contention in the original plan, set to take effect next January, are that—unlike in other countries—there is no carryover deduction for losses, the tax-exempt threshold is insufficient, and the specific taxation methods for airdrops and staking remain unclear.

According to an E-Daily report on the 10th, the National Assembly’s Finance, Economy, and Planning Committee finalized the replacement of committee members and the composition of the committee for the second half of the 22nd National Assembly on the 6th and has begun forming subcommittees. A National Assembly official predicted, “Once the subcommittees are formed this month, discussions on virtual asset taxation will take place in the Taxation Subcommittee and the Petition Review Subcommittee,” adding, “The Democratic Party supports implementing the original bill in January, while the People Power Party advocates for its repeal (proposed by Representative Song Eun-seok) or a three-year postponement (proposed by Representative Jeong Seong-guk), so a clash is expected.”

Key points of contention regarding the Income Tax Act amendments on virtual assets—set to take effect next January—include loss carryforward deductions, tax-exempt limits, and airdrops and staking. First, the government and the ruling party oppose allowing loss carryforward deductions. A loss carryforward deduction is a system that allows losses incurred in a specific year to be offset against profits in subsequent years, thereby calculating taxes based on the aggregate gains and losses over multiple years.

For example, if you incurred a loss of 100 million won from a failed Bitcoin investment in 2027 but made a profit of 10 million won in 2028 due to a rise in Bitcoin prices, the loss carryforward deduction would result in a net loss of 90 million won (100 million won – 10 million won), meaning you would not have to pay any taxes. However, under the virtual asset taxation system set to take effect next year, which does not allow for such loss carryforward deductions, you would be required to pay taxes on the 10 million won profit from Bitcoin.

This contrasts with practices in other countries, such as the United States, where carryforward loss deductions are permitted. The U.S. applies the same tax framework to virtual assets as it does to stocks, allowing carryforward loss deductions for both stocks and virtual assets. Recently, Japan also decided to classify virtual assets as financial products. In contrast, South Korea classifies income from virtual assets as “other income”—similar to lottery winnings, which are considered temporary and incidental—and therefore does not allow carryforward loss deductions.

The 2.5 million won tax-exempt threshold is also a point of contention. Under the current Income Tax Act, starting next year, a 22% tax rate (20% other income tax + 2% local tax) will apply to gains from virtual assets exceeding 2.5 million won. If an investor buys 10 million won worth of Bitcoin and sells it for 20 million won, realizing a capital gain of 10 million won, the first 2.5 million won will be tax-exempt, while the remaining 7.5 million won will be taxed, resulting in a tax liability of 1.65 million won (7.5 million won × 22%).

In light of this, experts have raised the need to increase the deduction limit. According to the “Study on the Scope and Calculation Methods of Virtual Asset Taxation,” commissioned by the National Tax Service from the Changwon National University Industry-Academic Cooperation Foundation, the research team proposed raising the annual deduction limit from 2.5 million won to 7.5 million won. The rationale is that most domestic virtual asset investors are small-scale investors, and the burden on them should be alleviated.

In fact, according to the Financial Services Commission’s “Results of the Survey on the Status of Virtual Asset Businesses in the Second Half of 2025,” investors with holdings of less than 10 million won accounted for 90% of all investors. If this trend continues, approximately 10 million small-scale investors will have to file their virtual asset income tax returns individually by May 2028, attaching various tax-related documents.

Previously, during the 2024 general election, the Democratic Party pledged to raise the virtual asset tax deduction limit to 50 million won. On November 22, 2024, Jin Seong-jun, then Chair of the Democratic Party’s Policy Committee, stated, “This is a promise to the people and a party position that cannot be easily reversed.” However, the Democratic Party is now drawing a clear line, stating, “We are not currently considering any expansion of the virtual asset deduction limit.” Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul also said on the 29th of last month, “We will first implement the system next year and then make adjustments as needed.”

With less than five months remaining until taxation begins next January, the fact that specific taxation methods for virtual asset services have not yet been finalized is also a point of contention. Taxation criteria, scope, and methods for calculating acquisition value and cost basis for various types of virtual asset income—such as staking (depositing coins to receive rewards similar to interest), lending (borrowing or lending coins to earn interest), airdrops (receiving coins for free through events), and hard forks (software upgrades)—have not yet been finalized.

In a research report, the Changwon National University Industry-Academic Cooperation Foundation analyzed that airdrops and hard forks are not subject to taxation because it is difficult to identify the donor and recipient. Furthermore, the report concluded that lending and staking should be treated as “lending” under the current Income Tax Act and are therefore subject to a 22% tax. It remains to be seen whether the Ministry of Economy and Finance and the National Tax Service will fully incorporate the findings of this report into their official notices and regulations. There are also currently no clear reporting or taxation guidelines for transactions conducted via personal wallets, overseas exchanges, or decentralized exchanges (DEXs).

Market observers believe that if these issues are not resolved urgently, regulatory uncertainty will grow by year-end, and clashes between the ruling and opposition parties will continue. Previously, the Moon Jae-in administration had decided to implement taxation on virtual assets starting in January 2022 and had been pushing forward with the plan. However, the National Assembly only decided to grant a deferral after President Lee Jae-myung—while serving as the Democratic Party’s presidential candidate—officially announced his position in favor of deferring the taxation of virtual assets on November 11, 2021.

Yoon Hyun-geun, CEO of INSIGHT3 Inc., stated “With less than five months remaining until the tax takes effect, the ruling and opposition parties are at odds, and key details remain undecided: specifically, which transactions are subject to taxation; which exchange’s market price to use when calculating the deemed acquisition cost; how to classify income from overseas exchanges, decentralized exchanges (DEXs), staking, airdrops, and DeFi; and how losses will be handled,” he said, He pointed out, “A tax system with shifting standards will cause confusion among taxpayers and place a significant burden on them.”