"‘Funds Should Have Basic Deductions Like Stocks’ VS ‘Funds Are Depository Concepts, No Need for Expense Deductions’"

Assemblyman Choo Kyung-ho Holds Forum on 'Desirable Directions for Financial Investment Tax System Reform'

Future United Party lawmaker Chu Kyung-ho is speaking at an urgent discussion on the desirable direction for reforming the financial investment tax system held at the National Assembly in Yeouido, Seoul, on the afternoon of the 2nd.
[Image source=Yonhap News]

[Asia Economy Reporter Joo Sang-don] A heated debate took place at a forum held in the National Assembly regarding the necessity of a basic deduction for collective investment schemes (funds). Experts in finance and taxation expressed concerns that applying the basic deduction only to direct investments and not to funds would violate fairness between investors and fund investors, ultimately leading to a sharp contraction of the fund market. In response, the government argued that the basic deduction is intended for necessary expenses related to direct investments, and since funds involve entrusting money, such a deduction for necessary expenses is unnecessary.

On the 2nd, Choo Kyung-ho, a member of the Future United Party, held an urgent forum titled "Desirable Directions for Financial Investment Tax Reform" at the National Assembly Members' Office Building.

Earlier, on the 25th of last month, the government announced the "Financial Tax System Advancement Plan for Revitalizing Financial Investment and Rationalizing Taxation," which includes expanding the taxable scope to small shareholders for capital gains arising from the sale of domestic listed stocks starting in 2023, and lowering the securities transaction tax from the existing 0.25% to 0.15%.

According to this plan, when taxing capital gains, a 20 million KRW deduction is applied to capital gains from domestic listed stocks, but there is no basic deduction for capital gains from stock-type ETFs or listed stocks within collective investment schemes (funds). Lee Sang-yeop, Senior Research Fellow at the Korea Institute of Public Finance, pointed out, "This violates tax fairness among financial assets and tax neutrality in financial asset investments," adding, "It may lead to an increase in direct investment in domestic stocks and a decrease in indirect investment."

Kim Dae-jun, Senior Researcher at Korea Investment & Securities, also expressed concern, saying, "If funds do not have a basic deduction unlike stocks, investors will lack incentives to invest in indirect investment products like funds, which will further shrink the already struggling asset management industry."

In response, Kim Moon-geon, Director of the Financial Taxation Division at the Ministry of Strategy and Finance, stated, "Even within the same financial investment income, there are direct investments and entrusted investments (like funds). When investing in stocks, investors must directly select portfolio composition, but funds involve entrusting money, so it is not appropriate to allow deductions for necessary expenses."

The forum also raised the need for tax support for long-term investments. Hwang Se-woon, Research Fellow at the Capital Market Institute, suggested, "Considering the strong short-term investment tendencies of individual investors, there is a need for tax support to promote long-term investments," and proposed, "Preferential tax rates should be applied to long-term investments (held for more than one year) to encourage individual investors to invest long-term."

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