Transaction tax maintained, capital gains tax also for retail investors... 'Double taxation' persists, ultimately 'increased tax revenue'

Transaction Tax 'Not Abolished' but Reduced by 0.1%p, 'Double Taxation' Remains
High-Net-Worth Individuals and Overseas Stock Direct Buyers Likely to Exit Domestic Market

"Long-Term Investment Appeal Will Further Decline"
Domestic Stocks = Short-Term Trading, Only Small Transactions Increasing
Brokerage Firms' Profits Already Minimal Due to Free Commission Competition

[Asia Economy Reporter Oh Ju-yeon] According to the financial tax reform plan, capital gains tax will be imposed comprehensively regardless of small or major shareholders, while the securities transaction tax, which was expected to be gradually abolished, will be partially maintained. As a result, there are criticisms that the financial tax reform necessary for capital market growth and financial investment activation is ultimately focused on the government's stable tax revenue collection.

On the 17th, the KOSPI index opened at 2,133.18, down 4.87 points (0.23%) from the previous trading day, fluctuating around the flat line as dealers worked in the Hana Bank dealing room in Euljiro, Seoul. Photo by Moon Honam munonam@

On the 25th, the securities industry analyzed that the 'Financial Tax System Advancement Plan' announced by the Ministry of Economy and Finance on the same day would not be a major factor determining the overall rise or fall of the domestic stock market, but investment attractiveness could decline. Although financial authorities self-assessed that tax revenue collection is being pursued neutrally, the market perceives it as a tax increase. While small investors with capital gains income under 20 million won may not see significant benefits, high-net-worth individuals and the recently increasing number of overseas stock direct buyers are expected to potentially exit the domestic market. Additionally, the attractiveness of the domestic stock market as a long-term investment destination is expected to further diminish, possibly leading to the activation of only short-term investments.

Professor Andonghyun of the Department of Economics at Seoul National University said, "It is desirable to impose capital gains tax from the perspective of stable tax revenue collection," but pointed out, "However, if capital gains tax is to be imposed comprehensively, it would have been appropriate to completely abolish the securities transaction tax for stock market activation." Professor An added, "At a time when the major shareholder criteria have been gradually relaxed, the comprehensive imposition of capital gains tax increases the likelihood of so-called 'big players' leaving the market," and "If existing shareholders who have made long-term investments exit, stock market funds may move overseas rather than domestically." He also expressed disappointment with details such as loss offsetting and loss carryforward. Regarding loss carryforward, he argued that while overseas periods are extended to five years or more, the three years included in this reform plan is too short.

Senior Research Fellow Lee Hyoseop of the Korea Capital Market Institute said, "Considering overseas cases, capital gains tax has had a significant impact on the market, so I hoped for very gradual changes, but there will inevitably be some market shock," and predicted, "Recently, Donghak Ants, including high-net-worth individuals, have led the domestic stock market, but this could provide an excuse for short-term corrections during the KOSPI overheating phase." Senior Research Fellow Lee criticized, "This issue should be handled under the fundamental principle of 'taxing where income exists,' but it is necessary to consider whether the focus was on 'tax increase.'"

Some view that the reduction of the securities transaction tax could increase short-term trading and positively affect securities firms, but the industry opinion is that it is difficult for this to lead to substantial profit increases. A securities industry official said, "Since fierce free commission competition is already underway among securities firms, an increase in short-term trading by small shareholders is not expected to increase securities firms' profits." Stock trading serves as a kind of incentive to sell other securities products, but there may be a need to prepare for the possibility of high-net-worth individuals exiting the stock market.

A Financial Investment Association official said, "The decisions on loss offsetting and carryforward are welcome, but the decision to ease the securities transaction tax is disappointing and falls short of expectations." Regarding the partial abolition of the securities transaction tax due to the inclusion of a 0.15% special rural tax, the official pointed out, "Imposing the special rural tax on financial investors is a matter that needs to be reconsidered," and criticized, "It is still double taxation."

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