The recent decision to exclude South Korean cryptocurrency exchanges from the proposed tax benefits for “New-Growth Technologies” has been met with significant backlash from three leading blockchain associations.
Controversial proposal
The South Korean Ministry of Small and Medium-sized Enterprises (SMEs) has ruled that cryptocurrency trading platforms are to be treated in the same ilk as entertainment or gambling businesses and others. Therefore, they will not be subject to the special tax relief that had been proposed earlier in July.
In total, 157 technologies across 11 areas were included in the “new-growth technologies”. Quantum computing, commercialization facilities and blockchain technologies were part of this list.
The announcement came from the “Revitalization Support System for Investment Promotion” that took place on 18 July. A point of contention, however, was that government wasn’t sure where blockchain technologies were concerned, due to initial coin offerings (ICOs) and digital currencies still being treated as gambling.
SMEs or venture businesses included in the Restriction of Special Taxation Act found themselves relishing in tax cuts of anywhere between 50-100% in their first five years of operation.
Later on, in July, the government concluded that cryptocurrency exchanges did not fit within this new taxation law for SMEs and proposed for the amendment exclude exchanges from the special tax rate. The government justified this saying, “The virtual currency transaction brokerage was not effective in generating added value.”
Backlash
This proposal is now subject to much scrutiny among blockchain groups in South Korea. On 10 August, the Ministry of SMEs formally announced that it would be amending the tax laws and confirmed the aforementioned rationale to exclude cryptocurrency exchanges from them.
The Korea Blockchain Association, Korea Blockchain Industry Promotion Association and the Korea Blockchain Startup Association have banded together to combat the decision in strong opposition.
In a letter to the ministry, the associations have accused the government of stifling innovation within the blockchain industry, arguing that the change is “against the regulatory innovation trend of President Moon Jae-in”.
They wrote, “If this legislation is implemented, domestic companies with the second largest number of blockchain technology patents after IBM will be excluded from classification as venture businesses just because they operate a cryptocurrency exchange.”
Adding, “The investment in research and development by blockchain technology-based companies will be hindered. As such, companies that are not able to receive policy benefits and tax incentives will either fail or move overseas.”
Until 4 September, the ministry’s proposal will be under review; it can be expected that South Korean cryptocurrency exchange operators and blockchain associations will be challenging this proposal until then.
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