Controversy arises over revised tax rules set by the ruling party
The Democratic Party of Korea has proposed a significant overhaul of the country's tax code, which could impact individual investors in the stock market. The proposed changes aim to increase government revenue through higher corporate and capital gains taxes, as well as securities levies.
One of the key changes is the lowering of the capital gains tax threshold for major shareholders. Previously, those holding shares worth 50 billion won (~$3.6 million) were subject to capital gains tax on their sales of securities. However, under the proposed revision, this threshold would be reduced to 10 billion won (~$716,000), broadening the taxable base and subjecting more individual investors with substantial stock holdings to capital gains tax on their stock sales.
In addition, the securities transaction tax will increase from 0.15% to 0.2%, increasing the cost of trading stocks for investors.
These changes are part of a broader overhaul intended to bolster social welfare and strategic industries. However, they have triggered a noticeable market reaction, with a 3.9% plunge in the KOSPI index attributed partly to investor concerns over higher taxes and tighter capital gains thresholds.
The dividend income tax regime is also being adjusted, targeting high-dividend companies with a new top tax rate of 35%, down from the previous 45% maximum.
Rep. Jin Sung-joon, who leads the Democratic Party's policymaking process, downplayed concerns that the tax code changes could stoke a bear market in the stock market. However, some investors have expressed concerns about the realism of holding 1 billion won worth of shares by the end of the year, and about the potential situation where investors may rush to sell off securities as the year ends to offset capital gains tax, which could stymie the moderate rise of the Kospi.
The online petition warns of this potential situation and has been started, calling on the ruling bloc to halt the tax bill revision. As of Sunday afternoon, about 95,000 people had signed the petition.
Rep. Park Sung-hoon of the main opposition People Power Party has criticized the ruling bloc, stating that they have launched a war against individual investors through the proposed tax code revision. The Democratic Party of Korea is facing backlash due to speculation that their push to expand taxation to a wider scope of investors may have contributed to the 3.88% drop in the Korea Exchange's main board Kospi on Friday.
In summary, individual investors with significant stock holdings above the new 10 billion won threshold will face greater capital gains tax liabilities, and all investors will encounter higher securities transaction taxes. These changes reflect the Democratic Party's policy focus on expanding tax revenue and adjusting the equity market tax landscape.
- The proposed tax code overhaul by the Democratic Party of Korea could affect many individual investors, as they will now face increased capital gains taxes and securities transaction taxes due to changes in the threshold for major shareholders and the rise in transaction tax percentage.
- The suggested tax code changes have sparked concern among some investors, who question their ability to hold 1 billion won worth of shares by the end of the year, and worry about a potential rush to sell securities before the end of the year to avoid capital gains tax, which could potentially stall the steady increase of the Kospi.
- The online petition against the tax bill revision, spearheaded by the main opposition People Power Party, warns of a possible market downturn due to increased tax liabilities for individual investors and higher costs associated with stock trading, and calls on the ruling bloc to halt the tax code revisions.
