South Korea Reconsidering ICO Ban?
According to the Korean Times, authorities in South Korea appear ready to soften their anti-ICO stance.
The South Korean government has long struggled with balancing the growth potential of blockchain technologies with the risk of destabilising its economy. Like China, South Korea banned ICOs in September of last year. In the government’s view cryptocurrencies were neither “money, nor currency or financial products”.
Then early this year rumours that it would shut down cryptocurrency exchanges sent markets into a tailspin. Unlike the Chinese, however, their position seems to have softened. Cryptocurrency exchanges look to be heading towards regulation, and it appears that ICOs may be next.
An anonymous source told the Korean Times that,
financial authorities have been talking to the country’s tax agency, justice ministry and other relevant government offices about a plan to allow ICOs in Korea when certain conditions are met.”
Again in contrast with the Chinese situation, last September’s ruling has not been rigidly enforced. Companies have not been forced to return funds raised by ICOs, and Korean investors have been allowed to invest in ICOs overseas.
There is also evidence that Korean startups are launching ICOs overseas to get around the restrictions. Zitco, a healthcare company, will be conducting its offering via Singapore, while gaming company Hanbit Soft are using a Hong Kong subsidiary.
The current situation appears untenable. Korean entrepreneurs are still holding ICOs, and Korean investors are still putting money into them, but the government is out of the loop, and most importantly, out of potential tax revenue.
South Korea’s top cryptocurrency regulator Kang Young-soo remains tight-lipped on the issue. “There’s nothing that we can say officially at the moment”, he said, though he admitted that the “FSC has acknowledged a third-party view regarding the issue”.
Before any major reversal there will need to be legal changes around the trading of cryptocurrencies and assets. The quoted source suggests that “the imposition of value-added tax, a capital gains tax, or both on trade” would have to come first, as well as “the collection of corporate tax from local cryptocurrency exchanges” and their potential licensing.
A combined effort will be needed, involving banks, the justice and finance ministries. Key is that the government should be able to “track the history of capital inflow into ICOs”. Once the capital can be tracked, it can be taxed.
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