Korea's chip-led rally creates unexpected gains for farms, schools

Dealers at Hana Bank headquarters in Seoul celebrate after the benchmark KOSPI crossed the historic 8,000 mark for the first time during intraday trading, May 15. Yonhap

As Korea’s stock market barrels through record highs on the back of the semiconductor rally, the boom is creating an unlikely windfall that extends far beyond the trading floor, into farms and schools. Behind it are two earmarked taxes that automatically rise in line with trading activity and financial firms’ earnings.

But the surge is also exposing a policy dilemma.

Critics have argued that these funds were already taking in more money than they could realistically spend. Now, with the market rally expected to generate tens of trillions of won in additional tax revenue, debate is growing over how to handle the overflow — and whether the country’s decades-old tax structure still makes sense, industry officials said Sunday.

Unlike broad-based taxes such as income and corporate levies that flow into the government’s general budget, the special rural development tax and education tax are purpose-specific ones designed to fund designated policy areas.

The rural development tax, introduced in 1994 after Korea opened its agricultural market to foreign competition, aims to support rural communities and strengthen the farm sector. One of its key revenue sources is stock trading: Investors selling shares on the KOSPI pay a 0.15 percent levy on transactions.

This year’s stock market boom, led by chip giants Samsung Electronics and SK hynix, has sent trading activity surging past the government’s earlier rural development tax forecasts.

The revenue is projected to exceed 20 trillion won ($14.6 billion) this year, well above the government’s initial estimate of 13.6 trillion won. The Ministry of Finance and Economy said 3.6 trillion won had already been collected as of March, 2.5 times more than a year earlier, as KOSPI trading value soared.

The money is meant to flow exclusively into a special account for rural infrastructure and agricultural competitiveness projects. But with the fund already overflowing, the government has increasingly diverted the surplus money elsewhere. Last year alone, it redirected 2 trillion won in excess funds to other rural initiatives.

Critics argue the tax’s original justification has also faded over time. Korea’s agricultural and food exports have risen steadily for a decade, while the scale of trade-related vulnerability faced by farmers — the very rationale behind the levy’s creation — has diminished.

An empty classroom is seen at Joongni Elementary School in Pocheon, Gyeonggi Province, March 4, 2024. The school shut down in 2025 due to a shortage of incoming students. Korea Times photo by Shim Hyun-chul

The education tax follows a similar structure. Financial companies including brokerages, banks and insurers pay the levy on their earnings, with firms generating more than 1 trillion won in annual revenue charged 1 percent and smaller firms paying 0.5 percent.

The government projects education tax revenue for this year at 5.6 trillion won, but the figure is expected to climb further as financial firms continue to ride the market rally. Part of that tax is funneled into elementary, middle and high schools throughout the country.

Critics, however, say the education sector is already awash in money. Separately from the education tax, a record 76.3 trillion won is earmarked for education offices this year.

At the same time, the number of school-age children in Korea has plunged, intensifying concerns over bloated education spending. The elementary and secondary school population has fallen from 7.91 million in 2006 to 4.92 million today. As student numbers shrink, some local education offices have faced criticism for sitting on excess funds or spending heavily on questionable construction and facility projects.

This mismatch is fueling broader calls to scrap or overhaul Korea’s purpose-tax system and redirect the revenue into the general budget. In a report released in December, the National Assembly Budget Office said, “Taxes that have either fulfilled their original role or lost policy relevance amid changing economic and social conditions should be converted into general revenue that can be used more flexibly, including for welfare spending.”

“There’s a growing question over what brokerages and other financial firms have to do with education funding in the first place,” an official at a local insurer said.