South Korea confirmed a 22% crypto tax starting in 2027, just as trading volume across its five main exchanges collapsed nearly 55% during the first half of the year.

The timing raises an uncomfortable question about taxing a market that is already shrinking fast.

How the 22% Crypto Tax Will Work

Other income is a tax category covering gains that fall outside wages or business revenue. Under the Income Tax Act, profits from transferring or lending virtual assets will sit in that bracket.

Deputy Prime Minister and Finance Minister Koo Yun-cheol confirmed the schedule on July 29 during a National Assembly committee meeting, saying the government is pushing forward as planned.

The mechanics are straightforward. Annual gains above 2.5 million won, roughly $1,740, face a 20% national tax, while a local levy raises the combined rate to 22%.

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Investors below that threshold owe nothing. First returns are expected in May 2028, covering income earned throughout 2027. The measure has a long history of delays. Lawmakers approved it in 2020 for a January 2022 start, postponed it to 2025, then pushed it to 2027.

Opposition remains active. People Power Party lawmaker Kim Sang-hoon criticized the design because investors cannot offset losses against gains earned in later years.

That restriction could push traders offshore. Kim warned activity might migrate toward overseas exchanges, decentralized platforms, or peer-to-peer markets, reducing both volume and tax visibility at home.

Koo acknowledged the concern but resisted changes. Moving crypto into a capital-gains framework would require a review of the broader tax treatment of financial markets, he argued.

Why Is South Korean Trading Volume Collapsing

A separate opposition bill filed in March seeks to remove crypto income from the Income Tax Act entirely. Lawmakers referred it to a subcommittee, keeping repeal or another delay legally possible.

The volume figures explain the anxiety. Upbit, Bithumb, Coinone, Korbit, and Gopax generated roughly $366.58 billion in combined trading volume during the first six months.

That marked a 54.6% drop from the same period in 2025. The contraction continued through July, with cumulative volume falling by 16.9% compared with June.

Concentration is reshaping the market. Upbit processed about 11.69 trillion won in July, and while its volume fell 10%, its market share climbed from 62.3% to 67.4%.

Bithumb moved in the opposite direction. Its share slipped from 30.7% to 27.1%, widening the gap with Upbit to 40.3 percentage points.

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These figures may be attributable to the shift in liquidity concentration toward larger platforms during periods of slowdown.

Deeper order books absorb bigger trades with less slippage, reinforcing dominance when overall activity falls.

Smaller exchanges face real pressure. Coinone, Korbit, and Gopax are reportedly exploring partnerships with securities firms, institutional services, and restructuring.

Future competition may hinge less on raw volume. Stablecoin liquidity, regulatory compliance, and institutional access could matter more than retail spot trading alone.

Source: BeInCrypto