"Major Shareholders Propose 300 Million KRW Grace Period" VS "Proceed as Planned"... Decision Expected Next Week

Major Shareholder's 300 Million KRW Decision Next Week... Opposition Proposes 'Income Tax Act' to Maintain Major Shareholder 1 Billion KRW Threshold

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The ruling party and the government have yet to reach a conclusion on lowering the major shareholder threshold for imposing capital gains tax on stocks from the current 1 billion KRW to 300 million KRW. While the ruling party argues for a two-year grace period until 2023 citing financial market instability, the government insists on strengthening the threshold to 300 million KRW starting April next year as scheduled. Some expect a final decision to be made through party-government consultations next week.

According to the Enforcement Decree of the Income Tax Act on the 1st, the stock holding amount criterion used to determine whether an investor is a "major shareholder" subject to capital gains tax will be lowered from the current 1 billion KRW to 300 million KRW starting next year. Major shareholders holding more than 300 million KRW in a specific stock as of the end of this year will have to pay a capital gains tax of 22-33% (including local tax) on profits from selling that stock starting April next year.

First, the Democratic Party is advocating for a two-year grace period to ease the 300 million KRW threshold considering market conditions. Full taxation on stock capital gains will begin in 2023, so there is no reason to cause market instability beforehand. Lee Nak-yeon, leader of the Democratic Party, also said, "We will make sure not to cause too much worry," in response to unfavorable public opinion regarding the 300 million KRW major shareholder threshold.

The Ministry of Economy and Finance has expressed its intention to implement the 300 million KRW threshold as is, but to switch to individual taxation only for family aggregation. Since this was already reflected in the Enforcement Decree revised in 2018, additional amendments are not possible considering policy consistency. The ministry also believes the impact on the market will be minimal as only 1.5% of all stock investors are subject to taxation.

An official from the Ministry of Economy and Finance stated, "The ministry plans to implement the strengthening of the 300 million KRW threshold as is," adding, "It is current policy to lower the major shareholder threshold for capital gains tax from 1 billion KRW per stock to 300 million KRW starting April 2021."

If the ruling party and government fail to reach an agreement, discussions on easing the capital gains tax will have to be based on bills prepared by the opposition party, so a decision is expected soon.

Ryu Seong-gul and Chu Kyung-ho, members of the People Power Party, have proposed amendments to the Income Tax Act to maintain the major shareholder threshold at the current level of 1 billion KRW.

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