[Major Shareholder 300 Million Controversy] "Gradual Adjustment Needed Until Capital Gains Tax Imposition Settles in the Market"

2023 Full Transition to Capital Gains Tax
Individual Investors Protest Double Taxation

[Asia Economy Reporter Minji Lee] Experts argue that it is advisable to postpone the plan to expand the scope of capital gains tax for major shareholders to 300 million KRW. Since the full capital gains tax is scheduled to be implemented in 2023, the originally prepared schedule needs to be readjusted.

Members of the Korea Stock Investment Association held a press conference in front of the Blue House fountain on the afternoon of the 23rd, urging to maintain the current major shareholder capital gains tax threshold at 1 billion won.
[Image source=Yonhap News]

According to the financial investment industry on the 29th, since the 2000s, most countries have shifted to full capital gains taxation and abolished transaction taxes, which is an international trend. Major advanced financial countries have long abolished securities transaction taxes and maintain a full capital gains tax system. In the case of the United States, the securities transaction tax was abolished in 1965, and the capital gains tax system has been structured for over 60 years. Germany and Sweden transitioned to a full capital gains tax system in 1991.

South Korea currently applies both transaction tax and capital gains tax, but does not impose full taxation on capital gains. Instead, capital gains tax is levied only on major shareholders. Regarding the scope of major shareholders, this year it is defined as those holding stocks worth 1 billion KRW based on market capitalization, and next year the scope is planned to be expanded to 300 million KRW. In 2023, the transaction tax is scheduled to be abolished and full capital gains taxation is planned. According to the financial tax reform for revitalizing financial investment announced last July, the system will shift to full capital gains taxation and abolish transaction tax in 2023. Until then, the scope of major shareholders will be gradually expanded to increase the number of taxpayers.

Experts pointed out that a gradual approach is necessary until the capital gains tax on major shareholders is established in the market. Hwang Sewoon, a researcher at the Korea Capital Market Institute, explained, "There is no case overseas where the scope of major shareholders is fixed at a specific point in time to tax capital gains," adding, "Since the ultimate goal is to transition to a capital gains tax system, the direction should be carefully considered."

There are also voices calling for a 1-2 year postponement of the implementation date considering the changed financial market environment. A financial investment industry official said, "If we look only at the government's tax revenue this year, it is expected to have collected about 12 to 13 trillion KRW, more than last year's 6 to 7 trillion KRW," and added, "From the perspective of individuals, if they have to pay capital gains tax as well, there could be strong backlash due to double taxation, so it is necessary to maintain the current system next year."

The need for flexible taxation based on holding periods, such as long-term holding special deductions like in real estate, is also raised. This is to prevent individuals who have made long-term investments encouraged by the government from being included under the lowered major shareholder criteria and unnecessarily selling their stocks. In line with the Income Tax Act amendment proposed by Lee Kwangjae of the Democratic Party, it refers to providing tax benefits for stocks held for more than one year and boldly reducing the current capital gains tax rate from 20% to about 14% for holdings over three years.

Under current law, progressive taxation based on holding period is not applied. Regardless of the holding period, a tax rate of 22% (including local income tax) applies to capital gains on stocks under 300 million KRW, and 27.5% applies to amounts exceeding 300 million KRW. However, the government currently opposes this, stating, "If long-term investment income is favored over short-term investment income, a capital freezing effect may occur, which could lead to a contraction in trading."

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