Ruling party faces backlash over tax reform plan

An electronic signboard shows the benchmark KOSPI closing at 3,119.41 at Hana Bank in Seoul, Friday, down 3.88 percent from the previous session. Yonhap

As the Korea Composite Stock Price Index (KOSPI) slid 3.88 percent on Friday, marking its steepest drop since President Lee Jae Myung took office, investor backlash to the government’s tax overhaul has ignited fresh divisions within the Democratic Party of Korea (DPK) over the definition of major shareholders.

The government on Thursday announced a tax reform plan that would require more investors to pay capital gains taxes by lowering the amount of stock they need to own to be considered major shareholders — from 5 billion won to 1 billion won ($719,500). The announcement prompted a swift backlash, with a petition against the measure posted on the National Assembly’s online platform accumulating more than 92,000 signatures as of Sunday.

For retail investors, the lower threshold means more individuals could be classified as major shareholders and become subject to capital gains taxes. That prospect has raised concerns of a year-end wave of stock sell-offs as investors seek to avoid the new designation — a move that could put further pressure on share prices.

As investors reacted negatively, differing views also emerged within the DPK.

On Friday, Rep. Kim Byung-kee, the DPK’s floor leader, wrote on social media that the party’s related special committees would review the possibility of raising the 1 billion won threshold for defining major shareholders, citing “growing concerns and anxieties” over the tax reform plan.

“We will work closely with the government to address investors’ distrust,” Kim wrote.

Rep. Kim Byung-kee, the floor leader of the Democratic Party of Korea, speaks during a meeting at the National Assembly, Friday. Yonhap

Last week, Rep. Lee So-young of the DPK also questioned the rationale for defining a person as a major shareholder based on holding 1 billion won in stocks, pointing out that the average apartment price in Seoul now exceeds 1.4 billion won.

“It’s hard to see how it’s reasonable to impose major shareholder taxes on someone just for holding 1 billion won in stocks — an amount that doesn’t even cover the cost of a single apartment in Seoul,” Lee wrote. “Policies like this can wait until the KOSPI surpasses 4,000 and stabilizes.”

As dissent surfaced within the ruling party over the tax reform plan, Rep. Jin Sung-joon, the party’s chief policymaker and one of the proposal’s key architects, issued a public rebuttal on Saturday.

“Many investors and experts say that restoring the capital gains tax threshold will collapse the stock market. But past precedent doesn’t support that claim,” Jin said, defending his policy by pointing to previous changes under past administrations.

Rep. Jin Sung-joon, chief policymaker of the Democratic Party of Korea, arrives for a meeting at the National Assembly, Friday. Yonhap

Jin said the capital gains tax threshold was lowered gradually to 1 billion won under the Park Geun-hye and Moon Jae-in administrations, and the stock market remained stable.

The lawmaker also criticized the Yoon Suk Yeol administration for backtracking by raising the threshold to 5 billion won on the notion that the change was meant to stimulate the market — a goal that has not materialized as stock prices have continued to fall. Reinstating the 1 billion won threshold, Jin added, is “part of undoing the damage to the country’s tax base.”

The presidential office struck a cautious tone, saying it was difficult to conclude that the KOSPI’s movements were triggered directly by reports on the tax reform plan.

The main opposition People Power Party accused the Lee Jae Myung administration of “declaring war on retail investors” with its tax reform plan.

“With the tax reform plan announced by the Lee administration and the ruling party, which aims to collect 35.6 trillion won in taxes, 100 trillion won in market value was wiped out in a single day,” the party’s chief spokesperson Rep. Park Sung-hoon said Sunday.