Opposition from Ministry of Economy and Finance over Full Tax Exemption Push for 'Mannung Tongjang' ISA Citing Concerns of Transaction Contraction

A bank counter in Seoul is seen with a quiet atmosphere. The photo is unrelated to the article content. Photo by Kim Hyun-min kimhyun81@

[Sejong=Asia Economy Reporter Kim Hyunjung] While the ruling party is pushing for full tax exemption on the Individual Savings Account (ISA), known as the 'all-purpose account,' the Ministry of Economy and Finance has conveyed an opposing opinion to the National Assembly. This stance is based on concerns about a potential decline in trading activity, similar to their negative position on tax reductions for long-term stock investors.

On the 20th, according to the National Assembly and the Ministry of Economy and Finance, the Ministry submitted a response letter to Lee Kwang-jae, a member of the Planning and Finance Committee from the Democratic Party of Korea, regarding the 'necessity of introducing a fully tax-exempt ISA to support long-term investment in the capital market.'

In the response letter, the Ministry stated, "Considering the negative impact of long-term holding on the capital market, support for long-term investment needs to be approached cautiously," effectively expressing opposition. They also emphasized, "Preferential treatment for long-term investment may cause a capital freezing effect, leading to concerns about reduced trading," and added, "Full tax exemption for ISA should be carefully judged by balancing tax fairness corresponding to taxpayers' ability to pay and the policy goal of supporting long-term investment in the capital market."

ISA is a product that allows trading of various financial products such as deposits and funds within a single account, and currently offers tax exemption benefits up to a maximum of 4 million KRW (4 million KRW for low-income and farming/fishing households, 2 million KRW for others) on interest, dividends, and capital gains. As of the end of August, approximately 2 million accounts have been opened.

The Democratic Party recently has been promoting a plan to fully expand the tax exemption benefits on ISA interest, dividend income, and capital gains. This is to attract investment through tax incentives and absorb liquidity in the market that has been concentrated in real estate. The government recently lowered the threshold by reducing the mandatory subscription period for tax exemption benefits from the existing 5 years to 3 years, and allowing students and housewives without income to also subscribe.

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