Should Gains on Digital Coins Be Taxed?

It appears that the government is determined to scrap its plan to shut down exchanges of cryptocurrencies in the face of strong opposition from individual investors.

On Jan. 23, the financial authorities announced that banks will begin issuing new trading accounts for digital coins Tuesday under a new real-name account trading system. Under the plan, current anonymous accounts for virtual coins will be banned.

This can be taken as a sign that the government will continue to allow transactions of decentralized currencies with a minimum of restrictions and regulations.

Now, attention is being paid to whether cryptocurrencies should be subject to taxation. Finance Minister Kim Dong-yeon reiterated Thursday that the ministry is mulling over the imposition of taxes on capital gains from such trading.

There is no consensus on the issue but most analysts believe that taxing gains on cryptocurrencies will be a step in the right direction. They expect taxation to help reduce speculative investment.

"Right now cryptocurrencies are mostly stores of value, not means of exchange. They are not primarily used for payments, but rather to speculate on and try to make money with," Mauro Guillen, director of the Lauder Institute at the University of Pennsylvania's Wharton School, told The Korea Times.

"Therefore, the government should regulate them as a way to protect investors," he added. "And if someone makes a profit by buying and then selling bitcoins, it should be taxed just like any other capital gain."

The analysts think that cryptocurrencies should be viewed as new investment products just like any other financial asset, such as stocks, so any move to tax gains on them sounds reasonable.

"Bitcoin and other cryptocurrencies are a new, growing asset class," Moody's Analytics economist Katrina Ell said.

It makes sense to treat its earnings just like other assets, which include capital gains tax.

Troy Stangarone, senior director of congressional affairs and trade at the Korea Economic Institute of America, concurred.

In Stangarone's view, while digital currencies have helped to ease transaction costs for international purchases, for many they have become an alternative investment vehicle.

"The United States, for example, taxes capital gains on trading in international currencies, so taxing or crediting the gains or losses from what is becoming a new investment vehicle is a natural step," he said.

"Additionally, placing cryptocurrencies into the same...