South Korea’s government has set a 22% tax on cryptocurrency gains starting in 2027, sparking concern amid a sharp decline in trading activity across the country's main exchanges. During the first half of 2026, combined volumes on top platforms like Upbit, Bithumb, Coinone, Korbit, and Gopax dropped nearly 55%, a staggering contraction that casts doubt on the timing of this new tax.

How the Tax Will Impact Investors

The tax targets annual gains exceeding 2.5 million won, about $1,740, with a national tax of 20% plus an additional 2% local tax, totaling 22%. This tax falls under the Income Tax Act’s "other income" category, applying to profits from transferring or lending virtual assets. Losses cannot be carried forward to offset future gains, a point critics emphasize as a major flaw.

Deputy Prime Minister and Finance Minister Koo Yun-cheol affirmed the tax plan in late July during a National Assembly hearing, insisting the government will proceed as scheduled. Returns will first be filed in May 2028, covering the 2027 tax year. The measure has been delayed multiple times: initially approved in 2020 with a 2022 start date, then pushed to 2025 before landing in 2027.

Opposition voices have been vocal. Lawmaker Kim Sang-hoon from the People Power Party warns that the inability to offset losses may drive traders to foreign exchanges, decentralized finance platforms, or peer-to-peer markets, potentially decreasing trading volumes and reducing tax transparency. Koo acknowledged this risk but resisted altering the tax framework, citing the need for a wider review of financial market taxation to consider capital gains classification.

Meanwhile, another opposition bill filed earlier this year aims to exempt crypto income from the Income Tax Act altogether. This bill is currently under subcommittee review, leaving open the possibility of repeal or further postponement.

The steep drop in trading volume aligns with growing unease in the South Korean crypto community. The country’s top exchanges, which once posted over $366 billion in combined volume, are feeling the pressure as investors react to regulatory changes. The cascading effect may push more crypto activity offshore, complicating tax enforcement.

This material is for informational purposes only and should not be considered financial advice.