South Korea Rolls Out Tax Credits for Blockchain Industry

Autumn of Gyeongbokgung Palace in Seoul ,Korea

The Government of South Korea has decided to extend tax exemption benefits for the blockchain companies in order to promote further research in the field of this fledgling technology. The move is expected to spur innovation and act as a catalyst for other technology-related organizations to innovate in the field of the blockchain. News Asia reported that the blockchain is among the 16 fields the government officials have decided to add to the list of tax credit related to the research and development area. Some of the other fields included in the study are wearable robots and technology to reduce fine dust. The announcement in this regard was made by the Minister of Strategy and Finance, South Korea who proposed the amendment to the 2018 tax law and new provisions will come into effect from the February next month.

New Provisions

According to the new provisions, large and medium-sized organizations can deduct 20% to 30% of their research and development expenses while for the small-sized enterprises, this deduction limit has been set between 30% and 40%. The new limit is quite large compared to the outgoing tax deduction which is set between 0% and 2% for large organizations and 8% and 15% for the medium-sized enterprises. Analysts agree that the overall attitude of the officials of South Korean Government towards the blockchain is positive and they want to give a fair chance to the technology to grow in the country. In September last year, Min Won-ki, second Vice Minister, Science and ICT, South Korea conducted a meeting with various blockchain startups operating in the country under the initiative of the government to engage important businesses operating on its soil.

Further complimenting the efforts of Min Won-ki, the Ministry of Science and Technology hosted a blockchain-focused lecture session later in the same month. Further, in November, the Ministry of Science announced that it is going to build a new voting system based on the blockchain in association with the country’s National Election Commission. The new voting system will be initially reviewed by the blockchain society of Seoul National University and Internet and Security Agency of Korea to take a final call whether it should be used for broader purposes like conducting elections etc.

Recommendation of Ernst & Young

Multinational research agency Ernst & Young (EY) has emphasized the positive effects of tax breaks and incentives on the technology-oriented organization involved in conducting cutting-edge research. Such organizations will further get motivated to carry on with innovation if they find support from the government officials and policy frameworks. Basis this observation, EY in its 2019 recommendations related to budget suggest that governments should extend tax exemptions to the financial technology organizations besides offering tax credits on research and development for small and medium-scale companies. More specifically, EY suggested a tax incentive having a preferential rate between 5% and 10% could be used to spur more innovation in the field of cloud computing, the blockchain, and other areas of authentication.

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