Lee’s Remarks Ease Capital Gains Tax Concerns... Now Focus Shifts to 'Separate Taxation of Dividend Income' and 'Mandatory Cancellation of Treasury Shares'

After President Lee Jaemyung on the 11th signaled his intention to withdraw the plan to lower the threshold for major shareholders subject to capital gains tax on stocks to 1 billion won, market attention has now shifted to additional amendments to the Commercial Act, centered on the separate taxation rate for dividend income and the mandatory retirement of treasury shares. In the securities market, with the uncertainty surrounding the capital gains tax-which had wiped out 116 trillion won in market capitalization in a single day-now resolved, there is growing optimism that if discussions to lower the top dividend income tax rate to 25% gain momentum, the goal of reaching 'KOSPI 5000' could come one step closer.

On the 11th, citizens at the Seoul Station waiting room watched the live broadcast of President Lee Jae-myung's 100-day inauguration press conference. 2025.09.11 Photo by Yoon Dongju

Lee: Separate Taxation of Dividend Income Should Also "Support Stock Market Vitalization"

At a press conference marking his 100th day in office held at the Blue House State Guest House, President Lee described himself as "the biggest ant among retail investors" and "currently a dormant ant." He emphasized that when capital market policies and tax revenue policies conflict, "it is desirable to move in a direction that supports the revitalization of the stock market." This confirms his intention to prioritize stock market revitalization not only in the government's plan to withdraw the major shareholder threshold for capital gains tax-taking into account strong market backlash-but also in other policies.

Regarding the separate taxation of dividend income, he specifically stated, "The goal is to maximize dividends as much as possible, as long as increasing dividends does not cause significant tax revenue losses or deficits," adding, "We are continuously running simulations." This remark is interpreted as a response to criticism within and outside the market regarding the government's previously announced tax reform plan, which set the maximum separate taxation rate for dividend income at 35%. President Lee added, "The fiscal authorities probably believe this is the level at which dividends can be maximized without causing tax revenue losses," and emphasized, "If necessary, we can make adjustments at any time."

There have been ongoing concerns within and outside the market that, much like the capital gains tax for major shareholders, the separate taxation of dividend income could also dampen investor sentiment. Since the dividend income tax rate is higher than the capital gains tax rate, which is around 25%, major shareholders have less incentive to increase dividends. According to the Korea Listed Companies Association, if the maximum separate taxation rate is set at 35%, the gap with the current maximum comprehensive financial income tax rate (which reflects the dividend tax credit) of 38.95% is only 3.95 percentage points. From a corporate perspective, there is little incentive to increase dividends.

The National Assembly Research Service also pointed out that, to meaningfully expand dividends, the tax rate should be lowered to around 25%. In its previously released report, "Directions for Improving Separate Taxation of Dividend Income to Strengthen Shareholder Return Policies," the service analyzed that the higher tax burden on dividend income compared to capital gains is a factor constraining corporate dividend policies. Accordingly, the research service argued that, for the institutionalization of separate taxation of dividend income for high-dividend listed companies, requirements for high-dividend listed stocks, vertical equity, measures to address tax revenue reduction, and consistency with the interest income tax system should all be considered. It also noted that, for major shareholders with a taxable base exceeding 300 million won, the tax rate should be set at least at the same level as the 25% capital gains tax rate.

Kang Sohyun, Senior Research Fellow at the Korea Capital Market Institute, stated, "In the long term, there is a need to establish a unified tax system without discrimination between asset types," adding, "Dividend income is subject to double taxation, as it is taxed again when distributed to shareholders after corporate tax has already been paid." She further emphasized, "The current progressive tax rate of up to 45% on dividend income is among the highest in OECD countries, highlighting the need for adjustment." Seo Joonsik, Professor of Economics at Soongsil University, also commented, "There is a need to lower the dividend income tax rate even further than the Ministry of Economy and Finance's proposal," and suggested that once the Korea Discount is sufficiently resolved and the price-to-book ratio (PBR) rises to the level of other countries, a combined approach to capital gains and dividend income taxation could be considered. Currently, Korea's 12-month forward price-to-earnings ratio (PER) is 9.8, which falls far short of the United States (22.5), China (12.3), and Japan (16.1).

Yonhap News Agency

Lee Reaffirms Commitment to Amending the Commercial Act, Including Mandatory Retirement of Treasury Shares

On this day, President Lee also reaffirmed his commitment to further amendments to the Commercial Act. The third amendment to the Commercial Act, which includes the mandatory retirement of treasury shares, is a key part of the Lee Jaemyung administration's efforts to vitalize the capital market, with the goal of passing it in the National Assembly within the year.

President Lee questioned, "Why is amending the Commercial Act seen as a constraint on companies?" and argued, "It is about restraining unfair actions by certain shareholders, thereby saving the company, benefiting the overwhelming majority of shareholders, and revitalizing the national economy." He also pointed out that opposition from the business community is being "distorted as if it represents public opinion." He reiterated, "The Commercial Act should be amended to ensure that companies are properly evaluated and to normalize the business environment."

He also expressed discomfort with the nuance implied by the term "Stronger Commercial Act," stating, "It sounds like a negative nuance," and defined the additional amendments as "strengthening protection for genuine company shareholders, ensuring companies contribute more to the national economy, and guiding companies toward growth." Having long identified the Korea Discount as a problem in the Korean capital market, President Lee described stock market vitalization as the "normalization" of the market and asserted, "The government has strong will, direction, and ample resources. If we contribute to economic growth and increase corporate net profit and earnings, the stock market will move up another level."

Currently, the securities industry is generally positive about the government's commitment to capital market vitalization, with the goal of achieving 'KOSPI 5000.' It is expected that the implementation of pledges, including the institutionalization of the principle of mandatory retirement of treasury shares, will continue through the first half of next year.

Kim Byungyeon, a strategist at NH Investment & Securities, stated, "The government's market-friendly and efficiency-driven stance has been reaffirmed," adding, "Additional policy directions will be determined based on detailed discussions in the September regular session of the National Assembly regarding the separate taxation of dividend income and the mandatory retirement of treasury shares." He assessed, "The most positive scenario would be if the maximum separate taxation rate for dividend income is below 30% and the grace period for the retirement of treasury shares (existing shares) is less than one year."

Lee Kyungsoo, a researcher at Hana Securities, also commented, "Recently, active government intervention and policy support have become the norm in global capital markets," and expressed hope that, "(Following the relaxation of the major shareholder capital gains tax threshold,) if discussions to lower the maximum dividend income tax rate to 25% begin, the stock market discount will be fundamentally resolved."

There has also been positive evaluation that President Lee has faithfully fulfilled his pledge to strengthen the rights and interests of ordinary shareholders during his first 100 days in office. Lee Kyungyeon, a researcher at Daishin Securities, stated, "With the first amendment to the Commercial Act on July 3 and the second on August 25, the pledge to 'protect the rights and interests of ordinary shareholders through improved corporate governance' was kept," and added, "Going forward, pledges to eradicate controlling shareholder self-dealing through the abuse of capital and profit-and-loss transactions will be implemented."

In particular, the institutionalization of the principle of mandatory retirement of treasury shares is expected to be the first to be pursued. The first and second amendments to the Commercial Act included provisions such as expanding directors' duty of loyalty to shareholders, limiting the voting rights of the largest shareholder when appointing or dismissing audit committee members, electronic general meetings of shareholders, and mandatory cumulative voting systems.