"Apartment worth 2 billion won, but major shareholder only 300 million won?" Controversy as Transfer Tax Postponed for 2 Years Suggested

As Opposition Grows Against Tax Base Expansion
Kim Tae-nyeon: "Public Opinion Fully Considered"

[Asia Economy Reporters Song Hwajeong and Kang Nahum] The ruling party leadership has hinted at the possibility of postponing or abolishing the plan to lower the major shareholder threshold for capital gains tax on stock transfers from 1 billion KRW to 300 million KRW. This appears to be an effort to appease public sentiment amid strong backlash from individual investors.

Kim Tae-nyeon, floor leader of the Democratic Party of Korea, said at a National Assembly audit countermeasure meeting on the morning of the 8th, "There are concerns about whether it is appropriate to lower the major shareholder threshold given the expansion of the asset market," adding, "We need to review whether expanding the major shareholder criteria aligns with revitalizing the capital market to overcome the COVID-19 crisis."

Under current law, shareholders holding 1 billion KRW or more per stock are defined as major shareholders and are subject to capital gains tax of 22-33% (including local tax) on transfer gains. The government decided to gradually expand the major shareholder criteria and strengthen capital gains tax standards according to the '2017 tax law amendment.' Accordingly, from April next year, shareholders holding 300 million KRW or more per stock will have to pay capital gains tax on transfer profits.

Kim said, "Policies should be consistent, but changes in circumstances and field acceptance are also important," and added, "The Democratic Party will listen to the opinions of individual investors, known as Donghak Ants, in policy decisions." He emphasized, "After fully collecting public opinion, we will decide on related policies through party-government consultations as soon as possible. Until then, we will listen carefully to the public's views," and stated, "The party and government plan to finalize implementation after preparing a reasonable plan."

Currently, in political circles, there are ongoing criticisms that expanding the major shareholder scope amid growing economic scale is unreasonable. Woo Won-shik, a Democratic Party lawmaker, also said the day before, "It is premature to impose capital gains tax on stocks held over 300 million KRW," and argued, "The aggregation of holdings by generation should be abolished."

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, took a step back at the National Assembly audit of the Planning and Finance Committee the day before, stating that the government is considering switching from family aggregation to individual-based criteria for major shareholder requirements. This is a de facto government-level compromise, but investor backlash remains. If the plan to expand the major shareholder threshold to 300 million KRW is maintained, changing family aggregation to individual basis will not make much difference.

Professor Kim Young-ik of Sogang University Graduate School of Economics said, "It is somewhat fortunate that the major shareholder criteria for capital gains tax are being considered to change from family-based to individual-based, but even this is insufficient," and pointed out, "Personal financial assets in Korea have grown to over 4000 trillion KRW, so 300 million KRW is too low a standard." A securities industry official said, "With Seoul apartment prices reaching 2 to 3 billion KRW, holding 300 million KRW worth of stocks is not a large amount," and added, "Rather, the major shareholder threshold should be raised higher than 1 billion KRW."

There are also concerns that individual investors' sell-offs to avoid taxes at the end of the year could disrupt the stock market. Hwang Se-woon, a research fellow at the Korea Capital Market Institute, said, "The 300 million KRW standard is still questionable," adding, "The possibility of significantly increasing tax revenue seems low, and the market knows that selling in December and buying back later can avoid taxation, so I don't understand why they insist on this." He added, "Since capital gains tax will be fully imposed in 2023 anyway, it might be better to change it all at once then."

Meanwhile, Ryu Seong-gil, a lawmaker from the People Power Party, introduced a partial amendment bill to the Income Tax Act the day before to abolish the controversial 'family collective liability' stock holding aggregation standard in the major shareholder criteria and maintain the current market capitalization amount standard of 1 billion KRW. Ryu named this amendment the 'Donghak Ant Protection Act.' He said, "If unnecessary volatility increases in the stock market, those who are relatively inexperienced and have less understanding of the market, rather than wealthy investors with longer investment experience and larger amounts, will be the most affected," and added, "We will protect the newly participating Donghak Ants by preventing the government from arbitrarily changing the major shareholder criteria."

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