September National Assembly Crypto Showdown: Tax Deferral and Phase 2 Bill Highlights

The past month of August saw a flurry of legislative proposals, from tax deferral plans to regulatory overhauls, heating up the market. As the regular session of the National Assembly begins in September, the stage is set for serious deliberation and debate to turn these proposals into actual law. Here, we break down the key points of contention regarding the tax deferral battle and the Phase 2 virtual asset bill that have both investors and builders paying close attention.

Virtual Asset Taxation: Is Deferral the Answer? The Emergence of New Compromise Proposals

The calculus in the National Assembly is getting complicated regarding virtual asset taxation, which was originally scheduled to take effect in 2027. The government and the ruling party have stepped up to advocate for a deferral, proposing a bill to push the tax back by two years to 2029. The rationale is that it is better to take more time rather than rushing to collect taxes while investor protection measures are not yet fully matured.

On the other hand, the opposition Democratic Party of Korea seems to be seeking a realistic compromise rather than an unconditional delay. Based on analysis from the National Assembly Budget Office, they are considering several interesting alternatives. The core principle is to maintain the tax where there is income, while easing the burden on investors.

Specifically, the introduction of a loss carry-forward deduction is being discussed, which would allow losses incurred during investment to be carried over for up to five years and deducted from future profits. This would mean losses from this year could be used to offset gains next year, effectively lowering the tax burden. Additionally, there is talk of significantly increasing the tax-free basic profit threshold from the current 2.5 million KRW to 6 million KRW.

Whether the needle tilts toward a simple tax deferral or a compromise plan is expected to become clearer at the discussion session held on September 3rd. Investors are keeping a close eye on how the tax issue will be resolved during this autumn session of the National Assembly.

Phase 2 Virtual Asset Bill Highlights: Limiting Major Shareholder Voting Rights and Stablecoins

There is another area drawing as much attention from the crypto industry as the tax issue: the Phase 2 Digital Asset Basic Act, which will establish the practical institutional framework for the market. Several bills that sparked discussion in August will now face formal review during the regular session of the National Assembly this September.

The most notable issue in this assembly is how to regulate the influence of major exchange shareholders. Instead of extreme measures like forcing major shareholders to sell their stocks, a compromise is being heavily considered to limit their voting rights as shareholders to 20%. It is a rational compromise that aims to check monopolies while preventing sudden instability in exchange management.

A rule mandating that banks hold more than 51% of shares when issuing KRW stablecoins is also a hot potato. If this standard proposed by regulators and politicians passes, it will become mandatory for builders preparing stablecoins to partner with commercial banks. While this could increase stability through closer ties with the financial sector, it may also raise entry barriers for startups and new projects, drawing significant industry attention.

Will the 'One Bank per Exchange' Regulation Finally Be Lifted?

One of the representative regulations that has been holding back domestic virtual asset exchanges is the 'one bank per exchange' principle. This rule restricts each exchange to issuing real-name verified accounts with only one specific bank. Recently, a bill to abolish this regulation has been proposed, attracting significant interest from the industry and investors.

If this regulation is lifted, investors would be able to use their existing bank accounts more conveniently across different exchanges. There is a positive outlook that this could naturally foster healthy competition among exchanges, helping to revitalize the market.

However, the Financial Services Commission maintains its stance that it is still too early to relax regulations, citing concerns over anti-money laundering and financial market stability. They argue that caution is needed as the Virtual Asset User Protection Act is still in the early stages of implementation. A heated debate is expected in the September regular session between the industry's calls for deregulation and the authorities' adherence to a cautious approach.

Key Points to Watch Moving Forward

The bills that were busily proposed over the past month of August now face the true test of the September National Assembly. From the tax reform discussion on September 3rd to the legislative subcommittees to follow, the eyes and ears of both investors and the industry will be fixed on the National Assembly. I will continue to provide quick and easy-to-understand updates on any agreements reached during this regular session as they rewrite the rules of the market.