Dispute over tax increase on hefty capital gains worries investors
A dealer walks past screens showing the benchmark KOSPI and the won-dollar exchange rate in a dealing room of Hana Bank in central Seoul, Tuesday. Yonhap
By Yi Whan-woo
The government and the main opposition Democratic Party of Korea (DPK) remain poles apart over the timing of expanding their capital gains tax policy to tax more investors on stocks, bonds, derivatives and other financial products.
The discord worries retail investors who trusted that the plan to impose taxes of up to 25 percent on annual capital gains exceeding 50 million won ($37,700) from the financial market, initially endorsed by rival parties in 2020, would be delayed as announced by the Yoon Suk-yeol administration.
The plan was to take effect in 2023. But the right-leaning Yoon government postponed it to 2025, citing the downbeat mood toward the financial market and saying that it should be delayed on the country's path so as to boost the market-driven economy.
If implemented, it would mark a significant expansion of current rules as capital gains taxes are only applied to extremely wealthy shareholders with stakes exceeding 1 percent, or 1 billion won, in listed stocks.
It is anticipated to affect about 150,000 investors, which is 10 times more than those who are currently subject to such taxation.
The country's annual tax revenue is also anticipated to increase by up to 1.5 trillion won as a result of the plan.
With a bipartisan agreement yet to be reached on the 2023 national budget, the DPK has been calling for the need to observe the initial agreement to broaden capital gains taxes and implement it starting on Jan. 1 next year.
“The delay in the plan is intended to benefit only super-rich investors, and we can't let that happen,” DPK lawmaker Yoo Dong-soo said.
Also, a member of the National Assembly's Strategy and Finance Committee, Yoo cited his own findings that those whose profits from stock investments exceed 50 million only accounted for less than 1 percent of the total number of investors.
“The finding justifies the originally planned timing of the taxation, and where there are profits, the party will make sure there will be taxation,” the lawmaker said, Tuesday.
The plan can be unilaterally approved by the DPK, as it holds 169 of the 300 Assembly seats, which is more than the majority required to pass a bill.
Taking this situation into account, both the government and the ruling People Power Party (PPP) are asking for cooperation from the DPK.
“The financial market situation has changed a lot this year compared to in 2020,” Ko Kwang-kyo, the chief tax policy officer of the Ministry of Economy and Finance said last week, referring to the more than 30 percent decline of the benchmark KOSPI.
Ko speculated that implementing the plan from 2023 could prompt top investors here to dump their shares by the end of this year in search of other investment destinations outside Korea.
“We accordingly ask the Assembly to thoroughly go over the disputed plan again,” Ko said.
On Monday, the PPP requested the DPK to support the government's plan to delay the capital gains tax plan, saying, “It certainly can bring hope for the struggling stock market.”
As of Nov. 14, more than 50,000 retail investors had signed an online petition to the DPK to support the Yoon administration's plan to delay the tax.
An advocacy group for retail investors said it will hold a protest in front of the DPK's headquarters in Yeouido, Seoul throughout the remaining 2022, adding, “We otherwise will suffer more over the plummeting stock market.”