Controversy Continues Over the "300 Million Major Shareholder" Capital Gains Tax

[Image source=Yonhap News]

[Asia Economy Reporter Park Jihwan] Controversy continues to heat up over the planned lowering of the major shareholder threshold for stock capital gains tax scheduled for next year. More than 100,000 individual investors have participated in a Blue House petition related to the Income Tax Act, which lowers the major shareholder threshold from 1 billion KRW to 300 million KRW, showing strong opposition. There are concerns that over 10 trillion KRW worth of sell orders could flood the stock market at the end of the year as investors try to avoid the major shareholder criteria.

According to the financial investment industry on the 2nd, if the major shareholder capital gains tax requirements scheduled to be implemented next year are not adjusted, it is estimated that at least 10 trillion KRW worth of individual investor sell orders will be dumped all at once in the domestic stock market by the end of this year.

From next year, investors holding more than 300 million KRW (currently 1 billion KRW) in a single stock on the KOSPI or KOSDAQ markets as of the end of this year will be classified as major shareholders and will have to pay capital gains tax on stock transfers. Although the tax assessment date is from April 1 next year, the major shareholder determination is based on the end of December of the previous year, so to avoid becoming a major shareholder, stocks must be sold within this year.

An individual investor said, "Many individual investors I know who have been investing in stocks for over 20 years fall under the 300 million KRW threshold," adding, "If the major shareholder criteria are not withdrawn by the end of November, they plan to sell most of their holdings in the domestic stock market during December and move their funds to overseas markets."

The major shareholder criteria in the KOSPI market have been continuously tightened. It was around 10 billion KRW in 2005, reduced to 2.5 billion KRW in 2016, then to 1 billion KRW in 2020, and will be lowered to 300 million KRW from next year.

What investors fear most is having to pay huge taxes once classified as major shareholders. Currently, major shareholders are subject to a minimum 20% capital gains tax, and if the capital gains exceed 300 million KRW, a 25% tax is imposed. Every year, there has been significant selling to avoid the major shareholder threshold, causing a vicious cycle of stock price declines. This is why there has been a saying that the domestic stock market effectively ends after Chuseok (Korean Thanksgiving).

As the situation escalated, even the political sphere has called for revisions to the system. The ruling party is considering revising the enforcement decree of the Income Tax Act, which specifies the major shareholder threshold as 300 million KRW in stock holdings starting from April next year.

On the 29th of last month, Kim Byung-wook, the ruling party floor leader of the National Assembly’s Political Affairs Committee and a member of the Democratic Party, urged in a press conference to postpone the tax reform plan that lowers the major shareholder threshold for stock capital gains tax from 1 billion KRW per stock to 300 million KRW. Kim said, "The domestic stock market has been recovering thanks to active buying by individual investors after the sharp drop caused by the COVID-19 crisis," adding, "However, there are many concerns that the expansion of the major shareholder scope at the end of this year will cause an excessive surge in net selling by individuals."

He added, "The taxable major shareholder includes not only the individual and their spouse but also the holdings of direct lineal ascendants and descendants who maintain independent livelihoods, so the 300 million KRW major shareholder threshold is an unreasonable standard that is absolutely unacceptable."

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