South Korea's tax authority invests $2.2 million in AI for tax audits, aiming to enforce a 22% crypto capital gains tax by 2027

The National Tax Service (NTS) of South Korea officially launched a $2.2 million AI tracking system project on May 8, scheduled for completion by the end of 2026, with the goal of comprehensively monitoring cryptocurrency transactions and cracking down on tax evaders. Meanwhile, the total number of crypto investors in South Korea has surpassed 11.13 million, though the growth rate of new users plummeted from 25% in the first half of 2024 to 3% in the second half; a 22% capital gains tax on crypto has been confirmed to take effect on January 1, 2027. (Prior context: South Korean government considers imposing cryptocurrency tax in an attempt to control this "speculative frenzy") (Background supplement: South Korean Finance Minister confirms: Cryptocurrency trading will not be banned) On May 8, the NTS officially launched the AI tracking system construction project at the Seoul Regional Tax Office, with a total budget of approximately $2.2 million, aiming for deployment by the end of 2026. This system will integrate transaction records from cryptocurrency exchanges with on-chain blockchain data, using AI pattern recognition to flag suspicious transactions such as money laundering, unreported gifts, and offshore tax evasion. Notably, the system's tracking scope will extend to non-custodial wallets—a gray area that tax authorities have struggled to reach when relying solely on exchange-reported data. ETNews reported that the AI system will be able to map the flow of funds between wallets and use AI to detect anomalous patterns. 11 million investors, but the growth engine has stalled According to the latest survey by South Korea's Financial Services Commission (FSC), as of the end of 2024, the number of real-name verified cryptocurrency investors on KRW-denominated exchanges reached 11.13 million, nearly doubling from 5.58 million at the end of 2021. However, the growth curve has seen a cliff-like drop: tradable accounts still saw a 25% growth rate in the first half of 2024, but this plummeted to just 3% in the second half. The industry generally attributes this to two main reasons: first, cryptocurrency returns have been far less impressive than those of stocks and commodities; second, South Korean exchanges only support spot trading, lacking derivatives and leverage, which makes them less attractive to speculative users seeking high-risk, high-reward opportunities. Despite the slowdown in user growth, the scale of exchanges continues to expand. The FSC's public filing system shows that the combined number of employees at the two major exchanges, Upbit and Bithumb, increased from 682 in 2021 to 1,334 by the end of 2024. Specifically, Upbit grew from 370 to 696 employees, and Bithumb grew from 312 to 638—reflecting that even with slowing growth, exchanges are still preparing for the next wave of expansion. 22% crypto tax is set to launch, no more concessions after two delays Moon Kyung-ho, head of the Income Tax Policy Division at South Korea's Ministry of Economy and Finance, stated clearly on May 7: "We will proceed with the taxation of virtual assets on January 1 next year as planned." This 22% tax rate consists of a 20% national tax plus a 2% local tax, with a taxation threshold for annual cryptocurrency gains exceeding 2.5 million KRW (approximately $1,800). The crypto tax was originally scheduled to take effect in 2025 but has been delayed twice due to political maneuvering and industry backlash. Now, the January 1, 2027 deadline leaves no room for further negotiation. The NTS is coordinating specific implementation guidelines with the five major KRW exchanges—Upbit, Bithumb, Coinone, Korbit, and Gopax—with completion expected by the end of 2026. Against this backdrop, some traders have begun considering moving funds to overseas exchanges that do not impose crypto capital gains taxes. However, with the AI tracking system coming online simultaneously, whether such capital flight can truly remain "invisible" remains a significant question.