Hello, I am Jun Ji-hye, a reporter at The Korea Times. I primarily cover financial authorities and write articles on a wide range of topics related to finance and capital markets. If you have any information to share, feel free to email me at jjh@koreatimes.co.kr, and I will review it carefully. I am committed to always doing my best to communicate with readers through high-quality articles.
Korea set to raise stock transaction tax to offset declining tax revenue
The KOSPI, the won-dollar exchange rate and the Kosdaq are displayed on an electronic board at Hana Bank’s headquarters in Seoul, Monday. Yonhap
By Jun Ji-hye
Proposed tax hike sparks dilemma amid Lee's pledge to support stock market
The Lee Jae Myung government is expected to increase the securities transaction tax as it moves to roll back the tax-cut policies of the previous Yoon Suk Yeol administration, government and industry officials said Monday.
The securities transaction tax is levied regardless of whether the seller makes a profit.
The proposed hike is seen as a measure to offset declining tax revenues following the failure to implement the financial investment income tax, which had been considered a key prerequisite for lowering the transaction tax.
Previously, the Moon Jae-in administration had planned to introduce a financial investment income tax targeting realized gains and, to avoid double taxation, intended to gradually lower and eventually abolish the securities transaction tax.
However, the implementation of the financial investment income tax was first delayed and then ultimately scrapped under the Yoon administration, prompting renewed calls to restore the previously reduced securities transaction tax.
Currently, the securities transaction tax rate for KOSPI trades is significantly lowered, effectively bringing it close to zero.
In 2019, the rate stood at 0.1 percent, excluding a separate 0.15 percent rural development tax. Following the confirmation of the financial investment income tax plan, the rate was reduced by 0.02 percentage points in 2021, with further cuts of 0.03 percentage points in 2023 and 0.02 percentage points in 2024.
This year, it was lowered by another 0.03 percentage points, meaning that in most KOSPI transactions, only the rural development tax now applies. The rate for Kosdaq trades has also been cut from 0.25 percent to 0.15 percent.
As a result, securities transaction tax revenue has declined steadily, falling by around 50 percent from 10.3 trillion won ($7.4 billion) in 2021 to 4.8 trillion won last year. This decline has been cited as one of the key factors contributing to the government’s large-scale revenue shortfalls in 2023 and 2024.
Economy and Finance Minister Koo Yun-cheol speaks during his confirmation hearing at the National Assembly in Seoul, Thursday. Yonhap
During his parliamentary confirmation hearing on Thursday, Economy and Finance Minister Koo Yun-cheol said he will take into account "the taxpayer's ability to pay and the overall effectiveness of the tax reduction measures," in response to a question about whether the previous tax cuts should be reversed.
The finance ministry is reportedly considering restoring the securities transaction tax gradually through a partial increase.
A sharp or full hike seems unlikely due to the growing number of retail investors. Additionally, there is a dilemma that such a move would conflict with the Lee administration's commitment to supporting the stock market.
Retail investors have already begun expressing dissatisfaction in online communities, questioning whether the proposed tax increase contradicts the administration's market-friendly stance.
"An increase in transaction tax rates would inevitably place a heavier burden on short-term traders who engage in frequent transactions," one investor commented in an online forum.