Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Government, opposition poles apart over taxation on wealthy, banks
Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho speaks before the National Asssembly's Strategy and Finance Committe concerning next year's budget at the Assembly in Yeouido, Seoul, Nov. 13. Yonhap
By Yi Whan-woo
The government and the ruling party are at odds with the opposition over tax policy for the wealthy, with time running out for the National Assembly to determine next year’s budget measures.
According to financial and political sources, the presidential office and the Ministry of Economy and Finance are considering easing capital gains tax on stocks.
The move comes amid a dispute over capital gains tax on major shareholders who own stocks worth more than 1 billion won ($772,600) in a single company on benchmark KOSPI.
Those whose stakes exceed 1 percent of total shares on the KOSPI or 2 percent of total shares listed on the secondary Kosdaq market are also subject to a capital gains tax.
To avoid taxation, the targeted shareholders dump their stocks at the year-end, causing stock prices to fall and inflicting losses on small investors.
In line with the government, the ruling People Power Party (PPP) is calling on the revision of equity market law to raise the barrier on taxation from 1 billion won to 5 billion won.
The main opposition Democratic Party of Korea (DPK) is against the revision of the law. It pointed out 0.05 percent of the 13.84 million retail investors were subject to capital gains tax on stocks, arguing easing the tax rule will have little impact on boosting the stock market.
“The investors should keep in mind that there is a corresponding amount of taxation whenever they raise revenue,” the DPK said.
The opposition is also against the government’s move to ease inheritance tax, which is levied as high as 50 percent.
The rate is the second-highest of all OECD member states' after Japan’s 55 percent. It has been increasingly disputed as not only chaebol but also small- and medium-sized enterprises (SMEs) run by successive generations of families found it extremely burdensome to carry on.
“The time has come to do something about inheritance tax,” Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said, noting 14 of the 38 OECD member countries don't impose such tax at all.
The DPK protested the idea by saying, “The government must not be mistaken that easing inheritance tax rules will lead to a spillover effect for the entire economy.”
“It will only benefit the wealthy side of society, and can eventually dent economic growth by deepening social polarization,” the party said.
The DPK instead is demanding the adoption of a windfall tax on commercial banks, which, following the central bank’s steep rate hikes, have constantly been criticized for reaping massive interest income without noticeable business innovation.
The oil refiners are another target for windfall tax, after they raked in profits during a surge in global oil prices.
“The windfall tax is crucial when firms make extra revenue due to outside factors, not due to their own efforts,” the DPK said.