Korea advised to adopt Singapore model for capital gains tax: professor

By Lee Min-hyung

The introduction of the financial investment gains tax is evolving into a political hot potato amid fierce opposition from retail investors.

Under the new tax, those who generate annual revenues of more than 50 million won ($38,000) via stock trading or derivative investments, will be subject to paying 20 percent in taxes. If the revenue tops 300 million won, a quarter of the gains must be remitted as taxes under the new taxation system.

The ruling and opposition parties are still in talks to delay the timeline for the tax from taking effect for another two years, and they have yet to fine-tune the details of the new taxation system.

Experts argue that the new tax should not go into effect unless the government abolishes other stock trading-related taxes.

“Asian financial powerhouses ― such as Singapore and Hong Kong ― impose taxes on securities transactions, not on investors' capital gains,” Kim Dae-jong, a professor of business administration at Sejong University, said. “Other developed countries ― including the United States and Japan ― do not tax securities transactions, though they do tax capital gains. But Korea is moving to implement both types of taxes, which is unreasonable when compared with other countries' taxation systems,” he said.

“It appears desirable for Korea to follow in similar footsteps to those of Singapore, and drop the idea of implementing taxes on capital gains from the stock market,” he added.

According to data from the Ministry of Strategy and Finance, the number of potential taxpayers for the financial investment gains tax reaches 150,000 here. The government is forecast to collect around 1.5 trillion won in funds from the tax.

But given the ongoing stock market downfall, both parties are widely forecast to reach a consensus to delay introducing the taxation change for the time being. The benchmark KOSPI remains in the doldrums and shows no clear signs of a rebound. The main bourse has fallen to around the pre-pandemic level, returning almost all of its gains over the past two years.

Earlier, the main opposition Democratic Party of Korea proposed the idea of cutting the securities transaction tax down to the 0.15-percent in exchange to postpone the introduction of the tax, but the ruling People Power Party opposed it.

Nonetheless, both parties are known to have tentatively reached a consensus to delay the adoption of the law until 2025.