Although the government has considered tax rebates to blockchain firms, crypto exchanges have been exempted from the tax perks.
On Monday, the South Korean government proposed some changes to the existing law structure. As per the new structure, crypto exchanges have not been considered eligible for significant tax benefits that are given to the small companies that are operating within the country’s startup ecosystem.
As per the existing laws, SMEs and startups can apply for a rebate of 50-100 percent in their income tax during the first five years of launch. After that, they are still eligible for nearly 5-30 percent tax cut in their income. However, it seems that the government has decided to exempt crypto exchanges from availing any of these benefits while explaining that “cryptocurrency transaction brokerage is not effective in generating added value.”
By the end of next month of August, a revised bill will be presented to the National Assembly for parliamentary debate and discussion before squaring down on the implementation of the new laws. However, it has to be noted that the government could still consider passing the income tax benefits to the blockchain startups operating in the country. This would come as a part of the government’s wider push for innovation and emerging technologies.
The South Korean government has put its work on the cryptocurrency regulatory framework with a focus to consider the cryptocurrency and blockchain sector as legitimate industries. The local regulatory authorities have been currently mulling several options to protect investors interests and still foster the innovation of its South Korea’s blockchain industries.
Earlier this year, the government financial authorities were however reluctant to regulate the crypto space as they feared that the investors would consider this decision as the embracement of digital currencies by the government. However, after two major security breaches of crypto exchange Coinrail and Bithumb, the government consider it important and mandatory to regulate the crypto space as early as possible.
Once the bill for regulating the cryptocurrency and blockchain industry is passed, cryptocurrency exchanges will be treated as regulated financial institutions operating under the purview of the country’s regulatory watchdog – The Financial Services Commission (FSC). To ensure that the crypto exchange provides the same level of services like commercial banks and other financial institutions, they will have to mandatorily follow some strict measures like KYC, AML and other internal management systems.
The Korean government has given this task to the Korea Financial Intelligence Unit (KFIU). A KFIU spokesperson was quoted saying:
“Under current regulations, there are clear limitations in preventing money laundering on crypto exchanges because the only way authorities can spot suspicious transactions is through banks. If the bill of lawmaker Jae Yoon-kyung from the Democratic Party of Korea passes, local authorities will be able to impose identical regulations on crypto exchanges that are implemented on commercial banks.”
If the bill is passed by the end of this year, it will play a crucial role to facilitate huge capital inflow to the country’s local crypto market in the coming years.