[New Year’s Prospect] The never-ending popularity of NFT… Cryptocurrency taxation fate

As non-face-to-face culture has become common due to the prolonged novel coronavirus infection (COVID-19), the era of the virtual world ‘metaverse’ has arrived in earnest. As virtual economic activity drew attention last year, money-making games (P2E) and non-fungible tokens (NFT) received attention at the same time, and it is analyzed that their popularity will continue this year as well.

The cryptocurrency taxation plan, which was scheduled to come into effect in January of this year, has been postponed for one year. In the cryptocurrency investment industry and politicians, there are growing calls for a clear definition of cryptocurrency and specific guidelines for taxation. As the presidential election approaches, discussions on cryptocurrency-related policies are expected to ignite this year.

◇The trending NFT in 2021… Prospects for continued popularity next year

Along with the metaverse craze, ‘blockchain’ is attracting attention as a base technology for virtual economy activities. Blockchain-based NFTs are also popular.

NFT is a digital asset that assigns a unique value to a distributed ledger system (blockchain) for art, content, and items. It is similar to cryptocurrency in that it is tokenized (asset) based on a block chain, but ‘rarity’ is guaranteed as each token is given a unique recognition value.

Simply put, 1 Bitcoin owned by Investor A can be exchanged (replaced) with 1 Bitcoin owned by Investor B. Because it has the same value as cash. However, in the case of NFT, the value of each token is different, so the C token cannot be replaced with the D token.

As such, due to the nature of blockchain technology, once created, NFT cannot be deleted or forged, and ownership and transaction history are specified, thus playing the role of a ‘digital register copy’. This is the background to the rise of NFTs in the digital world with uncertain revenue streams and no supervisory functions.

NFT has grown rapidly due to the spread of the non-face-to-face economy due to the spread of the novel coronavirus infection (COVID-19) and the change in investment trends of the MZ generation. The NFT market also grew rapidly as the MZ generation focused on investing in the value of a product that does not deteriorate over time.

According to SK Securities, the NFT market has grown more than 8.5 times from $40 million in 2018 to $340 million in 2020. In fact, in Korea, the NFT business continued to advance last year, centered on the game, art, and entertainment industries, and the craze continued.

For example, Kakao’s blockchain affiliate, Ground X, sold the art work NFT of actor Ha Jung-woo through the Kakao Talk cryptocurrency wallet ‘Clip’ in August of last year. His first digital art work, ‘The Story of Marty Palace Hotel’, was sold for 57.1 million won.

JYP Entertainment and BTS’ agency Hive also entered the NFT business. The entertainment industry plans to introduce NFT technology to the issuance and management of its artist intellectual property (IP) products. Hive is also considering the release of an NFT image photocard (Poca).

The NFT trading platform business is also in full swing. Cryptocurrency exchanges such as Korbit and Upbit have created their own NFT marketplaces (Korbit NFT, Upbit NFT) and expanded the types of digital assets they broker. Coinone is technically collaborating with Com2uS Holdings, the second largest shareholder, for the NFT business.

As such, the popularity of NFT is expected to continue this year as the introduction of NFT is actively taking place regardless of industry. Chainalysis, a global blockchain data platform company, predicted that “it will continue to evolve in 2022 as many artists, creators, celebrities and game developers who have not yet published NFTs are expected to release their collections.”

At a press conference in December, Dunamu CEO Lee Seok-woo said, “Next year, ‘NFT’ and ‘Metaverse’ will be the main keywords (industry). “I think that various services based on NFT will come out,” he said.

◇ What is the fate of cryptocurrency taxation in 2023?

This year, the cryptocurrency trading industry is expected to actively discuss taxation. The Ministry of Strategy and Finance originally planned to treat cryptocurrency transaction income as ‘other income’ from the 1st of this month and impose a 20% tax on the transfer profit if it is over 2.5 million won per year.

Investors and the trading industry agreed on the position that ‘taxation is where there is income’, but raised issues at the time of taxation due to equity in taxation with stocks and institutional loopholes. It is an opinion whether it is correct to apply the concept of ‘other income’, which is applied to temporary and accidental income such as lottery winnings, to cryptocurrency transactions in which continuous and repetitive trading occurs, such as stock trading.

In the case of other income, a deduction of up to 2.5 million won per year is applied, and a uniform 20% tax rate is applied to the remaining income.

The Ministry of Strategy and Finance, the tax authority, showed a strong attitude to promote taxation from this year. However, in the end, the National Assembly, the legislative branch, postponed the implementation by one year (to be implemented in 2023). In November last year, the National Assembly’s Planning and Finance Committee voted to amend the Income Tax Act, which includes the implementation of cryptocurrency taxation from 2023.

At that time, Minjoo Party lawmaker Kim Young-jin said, “The government and the mayor and the government are well prepared by deferring the taxation of cryptocurrency for one year, and the ruling and opposition parties agreed that it is the principle of acceptability of taxation, equity, and fair taxation to be implemented after the system is complete.” We are preparing so that virtual assets can take root properly,” he explained.

The cryptocurrency trading industry seems to have taken a breather. In accordance with the enforcement of the Act on the Reporting and Use of Specific Financial Transaction Information revised last year (the Special Act), it is an opinion that cryptocurrency exchanges that have just completed registration as virtual asset businesses have gained time to build a taxation system, which was tight.

However, there are still voices calling for detailed taxation guidelines. It is the background that the cryptocurrency trading industry is expected to continue discussing related matters such as the business rights law. As the new government is launched this year along with taxation discussions, it is predicted that policy discussions related to cryptocurrencies will be active.

A domestic exchange official, who requested anonymity, said, “We expect to create a cryptocurrency taxation system that investors can understand and empathize with by clarifying the definition of cryptocurrency and detailed standards for taxation.”

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