Will the General Election Stock Market Pledges Realize the Abolition of Securities Transaction Tax and the Implementation of Capital Gains Tax?

On the 6th, the KOSPI index started at 1,745.25, up 19.81 points (1.15%) from the previous trading day, continuing its strong trend. A dealer is busy working in the KB Kookmin Bank dealing room in Yeouido, Seoul. Photo by Moon Honam munonam@

[Asia Economy Reporter Park Jihwan] As the 21st general election concludes, attention is also focused on capital market-related election pledges. Previously, both the Democratic Party of Korea and the United Future Party proposed measures in their election pledges such as the phased abolition of securities transaction tax, imposition of capital gains tax on listed stocks, and offsetting gains and losses on financial investment products like stocks, bonds, and funds.

The abolition of the securities transaction tax is intended to reduce the proportion of transaction tax and increase the burden of capital gains tax, as taxing transactions conflicts with the fundamental taxation principle that "if there is income, there is tax." The securities transaction tax was already reduced from 0.3% to 0.25% in May last year, but considering that countries like the U.S., Germany, and Japan have no transaction tax, and China (0.1%) and Taiwan (0.15%) have competitive advantages over Korea, this measure was proposed.

Offsetting gains and losses means calculating taxes by summing the total profits and losses from investment products. For example, if there is a loss of 24 million KRW in Fund A and a gain of 10 million KRW in Fund B, from the investor's perspective, there is a net loss of 14 million KRW. However, currently, a dividend income tax (15.4%) must be paid on the 10 million KRW gain, which is considered unreasonable. Countries like the U.S. and the U.K. offset gains and losses on financial investment products and only tax when there is a net gain.

The key issue is expected to be the expansion of capital gains tax. There are concerns that if the capital gains tax is significantly expanded while gradually reducing the annual transaction tax of 6 to 8 trillion KRW, investor sentiment could deteriorate sharply. Under current regulations, investors who are not major shareholders do not pay capital gains tax on stock disposals. However, starting next year, if the stock holdings as of the end of this year exceed 300 million KRW including direct lineal relatives, they will be classified as major shareholders and must pay capital gains tax on profits from stock disposals. The tax rates are 30% for holdings under one year and 25% for holdings over one year. This is a significant lowering of the major shareholder threshold from 1 billion KRW as of the end of last year.

The securities industry pointed out that investor outflow should be considered if the capital gains tax burden increases sharply amid the weakened investor sentiment due to the COVID-19 impact. A financial investment industry official said, "Considering the burden on investors during the COVID-19 situation, it is necessary to ease the major shareholder criteria and postpone the introduction," adding, "In particular, actively reviewing a capital gains tax rate below 10% is necessary."

Furthermore, differences of opinion surrounding the separate election of audit committee members and mandatory cumulative voting, which were not resolved in the 20th National Assembly, are expected to continue. The ruling party advocates shareholder rights protection, while opposition parties and companies argue for management rights protection. The separate election of audit committee members means electing directors who serve as audit committee members separately from other inside and outside directors at the shareholders' meeting, and cumulative voting is a system that grants voting rights equal to the number of directors to be appointed to protect minority shareholders' rights.

This content was produced with the assistance of AI translation services.