Ruling Party and Government Soothing Retail Investors on 'Capital Gains Tax on Stocks'

Ruling Party and Government Discuss '2020 Tax Reform Bill'
Korean New Deal Tax Incentives
Expansion of Credit Card Deductions, Extension of Individual Consumption Tax Reduction Planned

[Image source=Yonhap News]

[Asia Economy reporters Jang Sehee and Jeon Jinyoung] The Democratic Party of Korea and the government announced the 2020 tax law revision plan on the 22nd, which includes expanding tax credits for new industry investment companies and raising the basic deduction for capital gains tax on financial investment income. The party and government explained that the focus of this tax law revision is on boosting economic vitality to overcome the COVID-19 crisis and strengthening coexistence and fairness.

On the same day, the party and government discussed this at the '2020 Tax Law Revision' meeting held at the National Assembly, attended by Kim Tae-nyeon, the floor leader of the Democratic Party, Cho Jeong-sik, chairman of the Policy Committee, and Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance. The final tax law revision plan coordinated at the party-government meeting will be announced at 2 p.m. that day.

According to the party and government, as part of the Korean New Deal promotion, the tax credit rate for commercialization facilities of new growth technologies and research and development (R&D) investment will increase. Floor leader Kim said, "We will raise the tax credit rate for commercialization facilities of new growth technologies and R&D investment that can support the Korean New Deal." They also decided to expand tax support, such as easing conditions for supporting distribution companies, to increase incentives for companies to return to Korea.

They also introduced supplementary measures to appease individual financial investors, such as significantly raising the basic deduction amount for capital gains tax on financial investment income. Floor leader Kim emphasized, "To revitalize the stock market, we will reduce securities transaction tax and significantly raise the basic deduction amount for capital gains tax on financial investment income." Chairman Cho added, "During the financial tax reform process, special care must be taken so that the stock market does not shrink or the enthusiasm of individual investors is not dampened. Since the stock capital gains tax is being introduced, it is necessary to reduce the burden on individual investors by further expanding the already announced deduction limit and rationally improving the carryover deduction period and withholding tax method."

This is analyzed as considering the adverse effects on the stock market due to individual investors' opposition to the stock capital gains tax. Previously, President Moon Jae-in said regarding financial tax reform, "It is a time to support individual investors who are supporting the stock market," and "Please consider the role of individual investors more importantly." Initially, the Ministry of Economy and Finance announced a plan to impose a 20% tax (25% for amounts exceeding 300 million KRW) on the capital gains exceeding 20 million KRW earned by individual investors from domestic listed stocks starting in 2023.

The party and government emphasized that the tax law revision related to the July 10 real estate measures will be promptly processed in the July National Assembly. Floor leader Kim said, "Today's tax law revision includes various economic measures announced so far," and emphasized, "We will complete the real estate tax reform for stabilizing the housing market, including strengthening comprehensive real estate tax, capital gains tax, and corporate tax on multi-homeowners and corporations, in the July extraordinary session." Chairman Cho also said, "Real estate-related legislation must be promoted without delay," and "It is necessary to strengthen taxation to fundamentally block speculation through corporations."

In addition, they said they will promptly promote the expansion of credit card deductions and the extension of individual consumption tax reductions to stimulate domestic consumption.

This tax law revision also includes measures to reduce the tax burden on low-income groups and small and medium-sized enterprises severely affected by COVID-19. Deputy Prime Minister Hong said, "Since the direct impact of COVID-19 damage is concentrated on low-income groups and SMEs, we will reduce their burden and strengthen tax support," emphasizing, "We want to focus on expanding the foundation for inclusion and coexistence. Revising VAT for the first time in 20 years is a representative example." Hong added, "The tax law revision attempts high-intensity support to promote consumption vitality and investment, as well as fundamental institutional improvements such as reducing securities transaction tax," and "We have worked on reducing the burden on vulnerable groups, strengthening tax support, and establishing a taxpayer-friendly tax system."

Experts emphasize that tax reform should focus on activating corporate investment rather than short-term economic stimulus from a long-term perspective. Professor Hong Woo-hyung of Hansung University’s Department of Economics said, "If the financial investment income deduction amount becomes excessively large, tax revenue may be short," adding, "Eventually, it will have to take the form of punitive taxation." Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, "To overcome COVID-19, the focus should be on activating corporate investment rather than economic stimulus tax reform."

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