South Korea’s financial regulator said Tuesday it might impose tax on nonfungible tokens, adding fuel to controversy surrounding virtual asset taxation in the country.
NFTs refer to the digital counterparts of real-world assets, mostly of visual art or music, that guarantee ownership through the blockchain technology.
Financial Services Commission Vice Chairman Doh Kyu-sang recently said that the government could collect taxes on NFTs under the current Act on the Specified Financial Transaction Information. Under the law, any income earned from purchasing and selling virtual assets is subject to “other incomes” and subject to taxation.
FSC‘s view, however, differs from the finance ministry.
Finance Minister Hong Nam-ki mentioned last month at the parliamentary audit session that it is still controversial whether or not NFTs should be included to virtual assets. “(I think) NFTs do not belong to virtual assets yet,” Hong said.
Experts worry that the FSC’s apparent disagreement with the finance ministry on matter of NFT taxation might spark market confusion.
“In the situation where the financial authorities are contradicting each other, it is confusing for market players of virtual assets to know whether they must pay taxes or not,” said Park Sung-joon, head of Blockchain Research Center at Dongguk University.
Park added if the authorities must impose taxes on NFTs, they should apply the tax rates similar to those imposed on the real assets, since the current law requires heavier taxation on NFTs.
According to the law, owners of virtual assets, any certificates that has economic value and is available for electronic transaction, must pay 20 percent tax on the income that exceeds 2.5 million won ($2,102) from selling the assets, such as NFT artworks of a famous artist.
On the other hand, if people sell the actual paintings, they must pay 22 percent of tax on the income of more than 60 million won, Park said.