TLDR

  • South Korea’s National Tax Service (NTS) is preparing an AI system to track cryptocurrency profits, with tax collection set to begin in January 2027.

  • The approximately $2 million AI system is designed to identify undeclared crypto gains and unusual trading activities.

  • The selection of a contractor for the system is expected to conclude in March, with a pilot operation scheduled for November.

  • The AI-driven audits will incorporate data from various cryptocurrency exchanges and government agencies.

  • The cryptocurrency tax will consist of a 20% income tax plus a 2% local tax on gains exceeding 2.5 million won.

South Korea’s National Tax Service (NTS) has begun the process of implementing an artificial intelligence (AI) system to monitor cryptocurrency profits, in anticipation of the government’s plan to levy taxes on digital asset gains starting in January 2027. This initiative aims to enhance the supervision of virtual asset transactions and combat tax evasion.

The AI system will consolidate transaction data obtained from exchanges and other trading platforms, enabling the efficient analysis of extensive cryptocurrency trading records. The objective is to promptly identify irregular patterns and detect any unreported income.

The project has been allocated a budget of approximately 3 billion won, which is equivalent to $2.02 million. Bids for the development of this system have been posted on the government’s electronic procurement platform, with a contractor anticipated to be chosen and contracted by the end of March.

AI System Development and Timeline

Following the selection of a contractor, system design is slated to commence in April. Throughout the year, testing will be conducted to ensure the platform’s accurate functionality. A pilot operation is planned for November, with the full system expected to be operational between November and December.

The NTS intends to systematically collect and manage transaction data through the use of AI. This platform will empower authorities to conduct in-depth audits of cryptocurrency investors. By analyzing behavioral patterns, the AI will be capable of flagging transactions that are likely associated with tax evasion.

The system will leverage machine learning to continually refine its ability to detect irregular trading activities and identify hidden income from taxpayers who have not reported their profits. Integration with other government systems will facilitate a more comprehensive monitoring of the digital asset market.

Crypto Tax Enforcement and Background

South Korea’s framework for taxing cryptocurrencies has faced multiple postponements since its approval in 2020. Lawmakers engaged in debates regarding implementation timelines due to industry opposition and disagreements over tax thresholds. The current plan establishes a 20% income tax, supplemented by a 2% local tax, on gains surpassing 2.5 million won.

The AI system will enable the NTS to efficiently share data with other government agencies, including the Korea Customs Service, the Ministry of Data and Statistics, and the Bank of Korea. This coordinated oversight is expected to improve compliance rates and reduce the incidence of unreported cryptocurrency profits.

Authorities plan to utilize the insights generated by the AI for audits and monitoring across various platforms. The system’s predictive analysis capabilities will be employed to identify transactions that deviate from normal patterns. AI-driven enforcement is a cornerstone of the government’s strategy for the 2027 rollout of the cryptocurrency tax.