Review of Capital Gains Tax on Stocks(?)... Likely to Consider Adjusting Taxation Criteria

President Moon's Remarks on 'Stock Market Contraction' Make Financial Tax Reform Revision Inevitable

Im Jae-hyun, Director of the Taxation Office at the Ministry of Economy and Finance (center), briefing on the "Direction for Advancing Financial Taxation" at the Government Complex Sejong on the 24th of last month. (Photo by Yonhap News)

[Asia Economy Reporter Kwangho Lee] On the 17th, President Moon Jae-in instructed that the government's tax reform plan to expand capital gains tax on stocks to individual investors "should not be a way to shrink the stock market or dampen the enthusiasm of individual investors," making it inevitable to revise the financial tax reform plan.

Last month, the Ministry of Economy and Finance announced a plan to impose a 20% tax (25% on gains exceeding 300 million KRW) on capital gains exceeding 20 million KRW earned by individual investors from domestic listed stocks starting in 2023, after deducting the initial 20 million KRW.

This plan aims to expand the scope of capital gains tax on stocks, which had been limited to major shareholders, to small shareholders as well, but there has been strong backlash among retail investors, who argue it constitutes double taxation.

Currently, the prevailing view predicts either a delay in the introduction of financial investment income tax or raising the threshold for taxation on financial investment income.

There are also suggestions to abolish securities transaction tax or to fully postpone the financial tax reform, but these options are considered unlikely.

In this regard, the government maintains that this financial tax reform is 'revenue-neutral' and not a tax increase.

It particularly explains that the tax burden will actually decrease for 95% of investors. Among approximately 6 million stock investors in total, 5.7 million (95%) have financial investment income below 20 million KRW annually and thus are not subject to taxation.

A government official stated, "We will announce the government plan after supplementing the identified issues through opinion-gathering procedures such as public hearings."

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