The United States Internal Revenue Service (IRS) is preparing for the forthcoming tax season, especially as it concerns digital assets.
According to a draft bill published by the tax regulator, investors in the US will be able to see if and how they are supposed to report their digital assets which include crypto coins and Non-Fungible Tokens (NFTs).
The 2022 draft IRS Tax forms have created a new category dubbed “Digital Assets” for the different categorizations of assets that are tied to the emerging blockchain industry. To give a more emphatic and clear picture of the obligations it places on taxpayers, the IRS defined Digital Assets as;
“..any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.”
In order to avoid any gray areas, the IRS stated that any digital asset that behaves in similarity to these assets per this definition will be treated as such.
The regulator stated some set of conditions under which Americans will need to give affirmations based on their crypto holdings. Per the draft bill, anyone who has received payment in cryptocurrencies over the past year received or gifted the assets categorized as digital assets amongst other conditions will have to properly report these items.
Taxing crypto gains is a very volatile subject of discourse in the global ecosystem, and based on their cryptographic nature, the government believes more people choose to hide their crypto transactions in a bid to evade taxes.
The IRS has been exploring quite a number of tailored solutions that can enable them to monitor crypto transactions in a bid to make everyone accountable. Besides working with exchanges to get necessary data on request, other private service providers are also helping the IRS develop tools that can aid its crypto tax goals.
The United States District Judge, Paul G. Gardephe has granted permission to the Internal Revenue Service (IRS) to issue what is called a John Doe summons on M.Y. Safra Bank to release information about customers who may have failed to remit taxes received from conducting crypto transactions.
According to a court order, Gardephe specifically asked SFOX to produce information about its customers who use M.Y. Safra Bank to make cryptocurrency payments. SFOX is a complete crypto dealer that provides crypto services for institutional investors that provide the liquidity, security and infrastructure needed to open the full potential of digital assets.
SFOX collaborated with M.Y. Safra to offer SFOX customers access to bank accounts for depositing and withdrawing cash.
SFOX users could use their money on M.Y. Safra to buy and sell positions in SFOX virtual currency. IRS, therefore, expects M.Y. Safra to provide information on the identity and crypto transactions of SFOX customers based on their partnerships so as to determine if IRS laws are complied with.
SFOX has a record of over 175,000 registered subscribers on its platform that have collectively performed transactions of over $12 billion since 2015. The IRS also stated that a third party is required to report such virtual transactions to them.
The IRS Commissioner Charles P. Rettig said in a statement that;
“The government’s ability to obtain third-party information about individuals who have failed to report their digital asset income remains an important tool for tax evasion.” According to him, the John Doe summons is a step in the right direction towards ensuring that everyone pays their taxes according to what they earn.
The U.S IRS issued a warning letter in 2019 to crypto owners stating that taxpayers must pay taxes owed or file amended tax returns for their cryptocurrencies.
“Taxpayers should take these letters very seriously by reviewing their tax returns and, if necessary, amending previous returns and paying back taxes, interest and penalties,” said IRS Commissioner Chuck Rettig.
Coin Center, a Washington DC-based Not-for-Profit organization with a focus on crypto policies, has filed a lawsuit against the United States Treasury and the Internal Revenue Service (IRS) for a tax reporting requirement it wants to pass into law.
Coin Center said the reporting requirement as detailed in the “Infrastructure Investment and Jobs Act” will require users to report transactions of $10,000 and above. The Bill demands the receiver of the funds to share the name of the sender, their date of birth, and their Social Security Number (SSN). According to the Coin Center lawsuit:
“In 2021, President Biden and Congress amended a little-known tax reporting mandate. If the amendment is allowed to go into effect, it will impose a mass surveillance regime on ordinary Americans,” the organization said on its website, adding that “uncover a detailed picture of a person’s personal activities, including intimate and expressive activities far beyond the immediate scope of the mandate. The reports would give the government an unprecedented level of detail about transactions within a realm where users have taken a series of steps to protect their transactional privacy.”
Coin Center is advocating that every American has the right to conduct whatever transactions they wish to conduct within a protected level of privacy that is designed.
Coin Center also noted that its “mission is to defend the rights of individuals to build and use free and open cryptocurrency networks: the right to write and publish code – to read and to run it. The right to assemble into peer-to-peer networks. And the right to do all this privately.”
The United States government has been doing all it can to provide long-sought oversight over the digital currency ecosystem and one of the most proactive ways it is doing this is by expanding the existing taxation provisions. While the Coin Center lawsuit is still very new, it is an indication that the crypto industry might be more resistant to whatever regulation they deem unfavourable.
Through the Goods and Services Tax (GST) body, India is mulling the idea of levying a 28% tax on transactions bordering on digital currencies in the Asian nation.
As reported by CNBC-TV18, the proposal is the brainwork of the law committee of the GST and is bound to be reviewed by a fitment committee before the government body adopts the new rule and makes it binding.
The new proposed rate will be 10% more than the current rate being charged, and if passed, it will further showcase India’s stance as being somewhat unfriendly to the nascent asset class as expected.
India has been particularly hitting the crypto ecosystem with a lot of taxes lately, and just this past April, the government imposed a 30% income tax on holders of the cryptocurrency. While taxation accounts for how the crypto ecosystem has agreed regulators can permit crypto to thrive on their shores, the tax rates can notably make cryptocurrency transactions generally unattractive, especially to the retail traders.
However, there are a lot of considerations that the law committee will make of the GST Council before pushing the proposal ahead. Some of these considerations include whether the cryptocurrencies are being used as payment for goods and services or as investment assets and more.
“There are various aspects of cryptocurrencies – the transactions involving cryptos, cryptos being used to make purchases, cryptos being received as payments. All these aspects are under examination and will be discussed by the law committee,” sources close to the matter told CNBC.
Currently, the GST Council considers crypto just as casinos, horse racing, and betting activities are classified. The high taxation is levied on considering the high-risk venture the transactions involving virtual assets can be.
While the stakeholders in the cryptocurrency ecosystem have long been in talks with the Indian government to adopt regulations rather than an outright ban for the nascent asset class, it is unclear whether consultations will be made with industry leaders concerning the proposed new tax rates.
A married couple in Tennessee have claimed that the U.S. government offered them a tax refund after improperly taxing their crypto staking rewards—but they are refusing it.
In 2019, Joshua and Jessica Jarrett sued the Internal Revenue Service for taxing them on unsold crypto rewards earned by staking on the Tezos blockchain.
The Jarretts’ case draws attention to certain inconsistencies in the IRS’s policies and seeks to force clarity on the matter.
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Joshua and Jessica Jarrett, a married couple in Tennessee and plaintiffs in a suit against the Internal Revenue Service, have said that they are rejecting a settlement offer from the government body; instead, they and their legal sponsors want to make the IRS defend its position in court.
Taxpayers Want IRS To Clarify Crypto Policy
A pair of Tennessee taxpayers have rejected a settlement offer from the IRS and are instead insisting upon regulatory clarity.
In 2019, Joshua and Jessica Jarrett were taxed on 8,876 Tezos tokens they received by staking on Tezos blockchain. These tokens were taxed as ordinary income, though the Jarretts contend those tokens should only have been taxed upon their sale. In 2020, the Jarretts sued the IRS for damages.
Their case was supported by the Proof of Stake Alliance.
Received property is treated as income for tax purposes in the United States; however, the Jarretts and POSA have argued that tokens awarded to the Jarretts were not technically “received” property at all, but instead “new” property.
Writing in the complaint that “no express provision of 26 U.S.C. §61 or any regulation thereunder treats as gross income an item of property created by a person,” the plaintiffs’ team goes on to argue that “new property—property not received as payment or compensation from another person but created by the taxpayer—is not and has never been income under U.S. federal tax law.”
In other words, the suit argues that the Jarrett’s “created” property by staking their Tezos tokens, and that therefore this property should not be taxable until it is sold, for it is only at the point of sale that the taxpayer realizes any gains.
Waving the White Flag
In December 2021, the IRS appeared to concede and offered the Jarretts a refund of $3,793, plus interest. However, they opted to reject it with the hope of receiving a “better answer” from the IRS regarding the agency’s official policy on mining and staking rewards.
Joshua Jarrett wrote in an official statement he shared on Twitter:
“At first glance, this seemed like great news. But until the case receives an official ruling from a court, there will be nothing to prevent the IRS from challenging me again on this issue. I need a better answer. So I refused the government’s offer to pay me a refund.”
The Jarretts’ refusal of the settlement would appear to be an effort to compel the IRS to clarify its policy of taxing staking rewards as income in front of a U.S. court. POSA believes the court case will help remove the confusion over the taxation of staking rewards.
“For the sake of fair tax administration and American innovation, I hope the IRS follows this up quickly with clear guidance that staking rewards aren’t taxable income,” Alison Mangiero, Board Member and acting Executive Director of POSA, said in a statement.
A bench trial is slated to start in March 2023, according to a court document. The outcome from the lawsuit may have far-reaching implications for crypto tax policy in the U.S.
Disclosure: At the time of writing, the author of this piece did not hold any of the aforementioned cryptocurrencies.
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The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.
You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
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WazirX exchange’s native token WRX benefited the most from India’s latest u-turn on crypto this week.
WRX price jumps on India tax news
WRX price surged nearly 30% to over $1, hitting a three-week high after the Indian government announced a new tax regime for the regional crypto sector, reversing entirely from its earlier strict stance that even contemplated an outright ban on the emerging industry.
$WRX – Up on news! https://t.co/Ln504eUZzm pic.twitter.com/zN3pW84DPY
— Yo! Crypto ₿ (@YoCrypto) February 1, 2022
In her budget speech on Tuesday, Finance Minister Nirmala Sitharaman said that they plan to tax the income from trading cryptocurrencies at 30%, which while among the highest rates in the world, also means that digital assets are officially recognized in India.
WRX price jumped after Sitharaman’s speech, probably due to its association with an India-based crypto exchange, WazirX. The WRX token serves as a utility token on the platform, benefitting users with trading fee discounts and access to new token airdrops.
Another 250% rally ahead?
Utility tokens typically derive their value from speculations that their adoption would grow in tandem with the growth of their platform, one that is no longer in regulatory limbo.
Javon Marks, an independent market analyst, predicted further price booms in the WRX market, noting that the WazirX token could climb toward $3.80 from its current $1-levels. At the core of his bullish analogy was a technical setup, as shown in the attached chart.
In detail, WRX’s ongoing price boom had its price break above a multi-month downward sloping resistance trendline. Marks noted that the breakout “technically” positions the WazirX token to rise by another 252% in the coming sessions to its April 2021 resistance targets.
“As long as WazirX holds this break, this target will remain pushable,” the analyst tweeted Wednesday.
The statement also surfaced as the crypto market, on the whole, remained in a state of turmoil after a depressive January performance. WRX itself dropped more than 30% into the month, mirroring similar moves across the top-ranking crypto-assets, including Bitcoin (BTC), which tanked nearly 18% in the same period.
The interim pullback scenario
WazirX’s day-to-day correlation with broader crypto market trends, however, puts WRX at risk of bearish continuation. It is primarily because the catalysts that played a key role in pushing the digital assets lower in January 2022 — the Federal Reserve’s hawkish turn — remain intact.
Related: Bitcoin ‘gives back gains’ after Fed comments ‘add downside risks’ to crypto markets
Additionally, the WRX price faces a technical resistance confluence that may limit its recovery bias in the sessions ahead. Specifically, a combination of price ceilings, including a descending triangle’s upper trendline, have already been capping the WazirX token’s upside attempts.
Other resistance levels include a 50-day exponential moving average (50-day EMA; the red wave) and a 200-day EMA (the blue wave). A pullback upon testing them risks dropping the WRX price to the descending triangle’s lower trendline near $0.75.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Crypto investors may be liable for income tax and capital gains tax based on their activity.
Capital gains tax and income taxes are applied differently based on the nature of crypto transactions.
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Crypto Briefing brings you a comprehensive guide on calculating cryptocurrency tax liabilities for 2022.
The Crypto Tax Guide
As we enter the new year, most cryptocurrency traders and investors will have tax deadlines looming. In the United States, the Internal Revenue Service will be opening up the filing process for taxpayers from Jan. 24, with last year’s tax returns due by Apr. 18. That means that tax returns filed in 2022 will apply to the 2021 tax year; taxes for 2022 will be due in April 2023.
The IRS first publishedits guidanceits guidance on taxing cryptocurrencies in 2019, and many other countries have adopted similar policies. As such, active crypto traders, DeFi enthusiasts, and NFT collectors need to pay attention to their tax obligations. Before filing taxes, the most important step is to take note of all crypto transactions that trigger taxable events.
Such transactions include selling crypto assets like Bitcoin and Ethereum for cash or other assets, receiving airdrops, crypto mining, staking, and yield farming.It’s also important to be aware of the type of tax that applies to each transaction. Those that trigger taxes fall into two main categories–income tax and capital gains tax. Both are reported differently in tax returns.This feature covers the topic in detail.
Income Tax
In the U.S., income tax applies on crypto assets received through staking, yield farming, as part of a salary, or in exchange for a good or service. Income tax is charged at the regular tax rate according to earnings. It applies to compensation earned from employment, including salary and royalties. Other earnings such as dividends and commissions are also subject to income tax.
All crypto assets received from lending, yield farming, airdrops, and governance token rewards are subject to income tax according to the market value at the time the user receives them. Whenever a user receives coins in their wallet, the market price in fiat terms can be used as the cost basis for reporting gross income.
In the U.S., the gross income must be reported onForm 1040, which is used for filing individual income tax returns. Income tax rates fall under seven brackets ranging from 10% to 37%. It’s worth noting that there is also a standard tax free deduction on income in the U.S. The deduction is set at $12,550 for the 2021 tax year and $12,950 for the 2022 tax year.
Capital Gains Tax
According to the U.S. Internal Revenue Code, capital gains are made from selling or exchanging capital assets like stocks and cryptocurrencies, and other properties used for investment purposes.
Capital gains or losses must be calculated when an asset is sold, swapped, or exchanged for fiat money, stablecoins, or any other tokens.
In the U.S., there are two types of capital gains tax: short-term and long-term. Short-term gains apply to assets sold within a one-year holding period and are subject to higher rates than long-term gains. As such, many crypto users opt to hold assets for more than one year to reduce their liabilities.
Short-term capital gains tax is charged at the same rate as ordinary income. Taxpayers can therefore expect to pay between 10% and 37% on gains from selling their assets within a year.
Long-term capital gains tax is charged at between 0% and 20% depending on the taxpayer’s income. The tax-free allowance for single people is up to $40,400 for the 2021 tax year and up to $41,675 for the 2022 tax year.
It is also important to note how capital losses can impact tax liabilities. A capital loss is a realized loss from an asset depreciating in value at the time of sale. Capital losses can be used to offset capital gains and reduce tax liabilities as part of a strategy known as “tax loss harvesting.” For example, a crypto user may have bought a DeFi token that underperformed in 2021. They could decide to sell that asset at a loss in order to offset the capital gains they owe on the SOL and LUNA they sold at a profit in the same year.
In the U.S., taxpayers must file the IRS Form 8949 to report capital gains and losses.
Taxes on NFTs
NFTs are tokenized digital collectibles that may encompass digital art, music, memes, or any other type of content.In 2021, NFTs exploded in the mainstream and welcomed a new wave of adopters into the crypto space.
While NFTs are still a nascent asset class, it is important to note that they are a type of cryptocurrency. As such, taxes apply to NFTs in the U.S. and other parts of the world. As with other types of crypto asset, the liabilities users face can vary from income tax to short or long-term capital gains tax.
There are two primary ways to generate NFT profits. One of them is creating an NFT and selling it on a marketplace such as OpenSea. In this instance, income tax applies.
Buying an NFT and selling it on the secondary market, meanwhile, leaves the user liable to capital gains tax. For example, if someone minted an NFT for $200 in Ethereum in May and sold it for $6,000 in Ethereum in August, the liability would be $5,800. Liabilities are calculated based on the dollar value of NFTs.
In the U.S., investors must report gains and losses from NFTs on the IRS Form 8949.
Airdrops
Many crypto tokens are launched through airdrops to early users. While airdrops can offer lucrative returns for active crypto users, they must also be reported in tax filings.
Token airdrops are considered a form of income in the U.S., and their value is based on the market value at the time the user receives them.
For example, if someone received 310.7 DYDX tokens from dYdX’s September 2021 airdrop and claimed them at a market price of $10, their taxable income would be $3,107.
The income tax forms a cost basis for calculating capital gains on an asset. It’s deductible from capital gains tax liabilities. For example, if the user sold the 310.7 DYDX when the tokens were trading at $20, they would receive $6,214. The realized capital gain would be the difference between the $6,214 profit and the $3,107 liability, which comes to $3,044. Tax would be due on the $3,044 gain.
On the contrary, if the user sold the 310.7 DYDX when the tokens traded at $6, they would receive $1,864.20. Factoring in the $3,107 taxable income, they would realize a capital loss of $1,242.80. This loss could be deducted from other capital gains, reducing the user’s overall tax burden.
DeFi Lending and Yield Farming
Taxes also apply to DeFi activities.
Lending assets on platforms like Compound, Curve Finance, and Balancer in anticipation of yield is a core component of DeFi.
Income tax applies to yield farming based on the market value at the time of claim or receipt in the user’s wallet.
In DeFi, lending rewards are typically paid out using interest-bearing tokens.For example, on Aave, lenders earnaTokens, a form of ERC-20 token that gets minted when a deposit is made and denotes the user’s deposited value. aTokenscan be redeemed for the underlying asset. Such tokens add a layer of complexity to reporting liabilities as they can trigger multiple taxable events.
For example, a DeFi user may buy 10 ETH for $3,000 each at a total price of $30,000. Later, they could deposit the assets into an Aave lending pool. Aave would mint 10 aETH, and they stay pegged to the underlying asset. Ten months later, if the price of ETH increased to $3,300, they would receive 0.1 aETH (or $330) in interest.
They would need to report the $330 interest as income. After this, they could close the deposit and convert 10 aETH to 10 ETH when each token is trading at $3,300. As they would receive a $33,000 sum, there would be a capital gain based on the difference between the value of the deposit and the assets withdrawn. The difference between the $30,000 deposit and $33,000 withdrawal results in a capital gain of $3,000.
The overall tax due would be $3,000 plus the $330 interest, which equates to $3,330.
On centralized cryptocurrency lending platforms, such situations be less complex. For example, lending 10 ETH on BlockFi may earn 0.1 ETH directly to the user’s wallet. If the user does not make any trades, they would only be subject to income tax.
Liquidity and Governance Rewards
Providing liquidity is another way to generate profits in DeFi.
On decentralized exchanges like Uniswap, liquidity providers can earn a portion of the trading fees.
Liquidity providers automatically receive a share of the fees through LP tokens, which represent a percentage share in a pool.
When users withdraw assets from a pool, they burn the LP token and receive their underlying assets plus any accrued interest.
Such activities constitute a crypto-to-crypto trade and therefore assume capital gains taxes.
For example, a user may receive LP tokens after depositing $1,000 worth of ETH to a Uniswap pool. If they withdraw their assets a few months later when the LP tokens are worth $1,100, the capital gain is calculated based on the difference between the LP tokens and the underlying asset. This would result in a capital gain of $100.
Many DeFi protocols also reward users with governance tokens in what’s known as liquidity mining. For example, if a user earns 10 SUSHI at a market price of $10 for providing liquidity on SushiSwap but does not dispose of the asset, they would owe capital gains on trading their LP tokens, and $100 income tax on their SUSHI rewards. If the price of SUSHI increased to $20 and they opted to sell the tokens, the liability would be the capital gain of $200 with the income tax liability of $100 deducted. This would result in a $100 liability.
Final Thoughts
The IRS has not provided complete clarity or guidance on taxing all types of DeFi transactions. For example, it’s still unclear whether depositing Bitcoin to mint wrapped Bitcoin would count as a taxable event. It could be argued that swapping BTC for WBTC does not count as disposing of the underlying asset, but most crypto tax experts say that transactions and trading should be considered taxable events. Therefore, even a simple swap of BTC to WBTC can qualify as a taxable event.
Many active crypto traders calculate their taxes using tools such as CryptoTrader.Tax, CoinTracker, TaxBit, and TokenTax. Such products are useful for tracking transactions and making the process of paying taxes on crypto less cumbersome. Some users opt for consulting a specialist before filing their returns. When using crypto, DeFi, and NFTs, it’s important to be aware of the tax liabilities for each activity. That way, there’s less chance of an unexpected shock when tax season comes around.
Disclosure: At the time of writing, the author of this feature owned ETH and other cryptocurrencies. None of the information presented above is intended as tax or investment advise.
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The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.
You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
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The Korean National Tax Service has announced that gifted or inherited crypto assets will be taxed under existing provisions, at a rate of between 10 and 50 percent, depending on their value.
Korea to Tax Crypto Gifts and Inheritance
Korean citizens will have to pay a new tax on crypto from 2022.
Local news agencies reported Tuesday that the Korean National Tax Service will levy a new crypto tax in 2022 targeting assets received as a gift or inheritance.
Under the new provisions, crypto gifts and inheritances will be taxed in line with other gifted or inherited assets at a rate of between 10 and 50 percent, depending on their total value. Authorities state that the average daily price measured one month before and after the date of transfer will be used to calculate the correct amount of tax to be paid.
The National Tax Service’s announcement listed four virtual asset providers—Dunamu, Bithumb Korea, Korbit, and Coinone—that will need to enforce the new tax provisions in the next year.
This year, crypto regulations in Korea have tightened, but not without some pushback. At the start of December, lawmakers voted to push back the introduction of a more general 20% tax on crypto gains over the threshold of 2.5 million KRW ($2,099). The crypto gains tax is now set to come into effect in 2023.
Elsewhere, Korean crypto exchanges are changing their policies to help them comply with the new regulations surrounding digital assets. Earlier this week, the country’s third-largest exchange, Coinone, announced plans to block withdrawals to unverified external wallets as part of its efforts to crack down on illegal crypto activities such as money laundering.
Disclosure: At the time of writing this feature, the author owned ETH and several other cryptocurrencies.
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The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.
You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.
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In what could be a big win for the local crypto industry, South Korean lawmakers are close to delaying taxation on digital assets for another year.
Representatives from the Tax Subcommittee in the National Assembly, South Korea’s legislative body, reached a bipartisan agreement on Nov. 29 by approving an amendment that could postpone the crypto tax by one year. If the amendment passes in a parliamentary session on Dec. 2, taxation will begin on January 1, 2023, not 2022 as previously planned.
Democratic Party lawmakers who have been pushing for this delay decried flaws in the information gathering procedures that would be implemented by the National Tax Service (NTS).
One such procedure would be to assume a 0 KRW ($0) cost basis for crypto assets that have been dormant on private wallets where the acquisition price could not be proven. This would create a significant tax burden for long-term holders who have been holding coins on private wallets before the tax legislation comes into effect. They would be effectively taxed on the full asset price, not just the gains made.
Representative Kim Young-jin, Chairman of the Tax Subcommittee, also pointed out the problem of demanding that citizens pay taxes on cryptocurrencies while the government has yet to adopt an official definition of what a cryptocurrency or virtual asset is.
“There is an inconsistent system for imposing taxes without a clear basis on how to legally define cryptocurrencies in our system… but only in Korea does taxation come before regulation.”
Proponents of tax implementation, most notably Finance Minister Hong Nam-ki, feel that the tax system should be equitable so that those who make gains on cryptocurrency trading contribute their fair share.
Over the past few months, Minister Hong has repeatedly shot down debate on the crypto tax topic in open session at the National Assembly.
Related:South Korea’s leading blockchain facing greater competition in NFT market
The year-long battle over the status of the tax delay has led to misinformation and confusion among both citizens and lawmakers. Conflicting news reports about the tax have been issued periodically throughout 2021.
Most recently on Nov. 23, the Financial Services Commission (FSC) flip-flopped on their opinion that NFTs would not be taxable, and stated that they were working toward considering them the same as tradable cryptos.
A recent update to Her Majesty’s Revenue and Customs (HMRC) regulations has introduced a digital services tax that will be levied on cryptocurrency exchanges operating in the United Kingdom.
Crypto exchanges in the UK will now have to pay a 2% digital services tax according to a Telegraph report. Britain’s tax authority, HMRC, does not recognize digital assets as financial instruments and therefore exchanges are not eligible for financial exemptions.
On Nov. 28, the authority included cryptocurrency exchanges under the Treasury’s tech tax. The digital services tax on revenue was introduced in April 2020 targeting social media and search giants such as Facebook and Google.
The latest blow to crypto exchanges is a result of the HMRC’s classification of crypto assets, as the regulator explained:
“There are a wide variety of crypto assets, each with different characteristics. It said that because cryptocurrencies do not represent commodities, financial contracts, or money, it is unlikely that crypto-asset exchanges can benefit from the exemption for online financial marketplaces.”
According to CryptoUK, the trade body representing the digital asset sector in Britain, the tax is unfair and is likely to be passed on to investors and traders.
Executive Director Ian Taylor stated that treating cryptocurrencies differently to other financial instruments such as stocks or commodities is detrimental to the crypto sector.
He added that it is another heavy blow to the industry following the arduous licensing system introduced by the Financial Conduct Authority (FCA) for exchanges. Since January, all UK-based crypto-asset companies have had to comply with AML (anti-money laundering) regulations and register with FCA.
The regulator imposed a ban on crypto derivatives in January, and in June, the FCA warned consumers against 111 crypto firms that had yet to register with it.
Related:UK revenue authority to target cryptocurrency tax evaders
In April, Cointelegraph reported that HMRC was ramping up its efforts to snare crypto tax evaders and introduced explicit demands on details of digital asset holdings on self-assessment forms.
Britain’s tax authorities reportedly demanded that several crypto asset exchanges hand over details on customers from transactions and holdings in August 2019.
