"It's inevitable, we will need to impose taxes on gains from trading of virtual assets," finance minister Hong Nam-ki said in a news conference, when asked the tax should be delayed until the government has proper oversight over the industry.
South Korea had earlier said it will start taxing capital gains from cryptocurrencies starting January next year.
Any annual gains of more than 2.5 million won ($2,253) from trading of cryptocurrencies will be subject to a 20% capital gains tax.
Hong said cryptocurrencies "are intangible assets", adding that it was a "misunderstanding" to label them as currencies.
The finance chief also warned that as trading of digital tokens are prone to new forms of illegal fundraising and fraud, investors should vigilant when making investment decisions.
($1 = 1,109.5800 won)
(Reporting by Cynthia Kim; Editing by Shri Navaratnam)