Will the Introduction of Capital Gains Tax on Stocks Drive Money into the Real Estate Market?

Securities Transaction Tax Rate Reduced from 0.25% to 0.15%

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[Asia Economy Reporter Jang Sehee] Concerns are emerging that the bubble in the real estate market will intensify as this financial tax reform changes the taxation system to impose taxes on all income generated from funds, including capital gains from listed stocks.

According to the Ministry of Economy and Finance on the 28th, from 2023, individual investors investing in domestic listed stocks will have to pay up to 25% tax on the portion of capital gains exceeding 20 million KRW annually. However, the securities transaction tax will be lowered, which is expected to reduce the burden on small investors.

The core of this measure is to shift the financial investment income tax system, which currently focuses on transaction tax, to one centered on capital gains tax. Lim Jae-hyun, Director of the Taxation Office at the Ministry of Economy and Finance, said, "Since the securities transaction tax will be reduced by the amount of increased tax revenue from capital gains tax, it is neutral from a revenue perspective," and added, "Because a basic deduction of 20 million KRW is applied to capital gains, 95% of cases where capital gains tax is not imposed will see a reduction in tax burden through the reduction of transaction tax."

Capital gains from stocks are combined into financial investment income after deducting 20 million KRW from the profits. Income from overseas stocks, unlisted stocks, bonds, and derivatives will be grouped together, and the remaining amount after a 2.5 million KRW deduction will be included in financial investment income.

The current securities transaction tax of 0.25% will also be reduced. In 2022, when partial implementation of classified taxation on financial investment income begins, it will be lowered by 0.02 percentage points, and in 2023, when full implementation occurs, it will be reduced by 0.08 percentage points, resulting in a total reduction of 0.1 percentage points from the current rate.

Some advise that imposing capital gains tax on stocks amid the unprecedented liquidity supply by the government, which is flooding the market with money, could hinder stock market activation and potentially lead to a real estate bubble.

Professor Kim Sang-bong of Hansung University’s Department of Economics said, "The capital gains tax seems to be set at an excessively high rate compared to the reduction in transaction tax, so revision appears necessary."

A Financial Services Commission official stated, "There will be a threshold for securities investors, making it difficult for funds to flow into the real economy market," and added, "It is not possible to completely rule out the result of funds rushing into real estate."

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