South Korea’s National Assembly Research Service Says Crypto Tax System Needs Overhaul Amid Avoidance Risks, Tax Gaps

• The National Assembly Research Service said the current income classification for gains from the transfer and lending of virtual assets could undermine tax fairness.
• It said there is room for tax gaps and a lower tax burden across a range of transactions, including family gifts, overseas spot virtual-asset ETFs, and assets earned through mining, staking and DeFi.
• The agency stressed that virtual-asset taxation should be implemented only after exchange tax systems and a framework for securing overseas transaction data are put in place.

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South Korea’s National Assembly Research Service said the current system for taxing virtual assets, or cryptocurrencies, needs broader institutional changes before the levy takes effect.

According to the agency’s Nov. 5 report, "Should Digital Asset Taxation Be Implemented as Is?," current tax law classifies gains from the transfer and lending of virtual assets as other income. The research service said that classification does not fully reflect the economic nature of such income and could undermine tax fairness.

In particular, it said gains from crypto trading are closer to capital gains because they result from increases in asset values. Under the current framework, direct sales of virtual assets are taxed as other income, while sales of spot crypto exchange-traded funds listed overseas follow the capital-gains tax rules applied to foreign stocks. As a result, similar investment returns can face different tax treatment.

The agency also raised the possibility that taxpayers could reduce their burden through family gifts. Because virtual assets are not subject to the carryover taxation rules applied under the capital-gains tax regime, investors could gift appreciated assets to a spouse or a lineal ascendant or descendant and then sell them, reducing tax on previously accrued gains.

The report also said tax law has failed to keep pace with the growing variety of transaction types. It said there are not enough clear rules on when assets obtained through mining, staking, airdrops, hard forks and decentralized finance, or DeFi, should be recognized as income and how they should be taxed. The agency stressed that laws and regulations need to specify taxable items and the timing of income generation in greater detail.

It also found that progress in building tax-reporting systems at exchanges remains insufficient. Materials from a National Assembly policy forum on Oct. 30 showed that Upbit is preparing to introduce a system, while Bithumb plans to begin development after detailed standards are finalized. Coinone has put related work on hold until the tax law is settled. That could increase the burden on investors using multiple exchanges, who may have to verify acquisition costs and transaction records on their own.

Securing overseas transaction data was also identified as a key task. Unlike domestic operators, foreign exchanges and decentralized exchanges, or DEXs, are harder for tax authorities to monitor adequately. The report said that even if the Organization for Economic Cooperation and Development’s Crypto-Asset Reporting Framework, or CARF, is introduced in 2027, major countries are set to participate at different times in 2028 and 2029, creating a gap in information collection.

The agency also acknowledged that repeated delays to the tax timetable could hurt policy credibility. Even so, it said the government should first address flaws in the current system by revising income classification and tax principles by transaction type, while also building a framework to secure transaction data and equipping service providers with the necessary systems.

Suehyeon Lee