'Short Selling Agents' Market Makers, Tax Exemption Reduced... Blue-chip Stocks Subject to Transaction Tax from April (Comprehensive)

Amendment to the Follow-up Enforcement Rules of the 2020 Revised Tax Law

[Sejong=Asia Economy Reporters Son Seon-hee, Moon Chae-seok] The securities transaction tax exemption benefit for market makers (22 securities firms) who have been labeled as so-called 'short-selling forces' will be reduced. Starting from April, securities transaction tax will be imposed on stocks with a market capitalization of 1 trillion won or more or those with active trading.

On the afternoon of the 9th, the Ministry of Economy and Finance announced plans to promote the '2020 Revised Tax Law Follow-up Enforcement Rules Amendment' containing these details. The amendment targets 18 enforcement rules, including the Framework Act on National Taxes, Income Tax Act, Corporate Tax Act, Inheritance and Gift Tax Act, and Comprehensive Real Estate Tax Act. These enforcement rules will go through legislative notice, inter-ministerial consultation, and review by the Ministry of Government Legislation, and are scheduled to be promulgated and enforced by mid-March.

Previously, the 22 securities firms designated as 'market makers' have been exempt from securities transaction tax on stocks they transfer since 2016. However, contrary to the original intent to stimulate trading in the liquidity-deficient KOSDAQ market and startup and venture companies, trading volume has concentrated on blue-chip stocks, leading to repeated criticisms that the basis for the tax exemption is insufficient.

Accordingly, the Ministry of Economy and Finance decided to exclude securities transaction tax exemption for stocks with a 'market capitalization of 1 trillion won or more' or those ranked in the top 50% by turnover rate in each KOSPI and KOSDAQ market. The turnover rate is calculated by dividing the daily trading volume by the total number of shares of a particular stock, which simply indicates 'how active the trading is.' The intention is to tax stocks that are already actively traded and have no liquidity concerns.

Additionally, for derivatives, stocks with a futures or options market trading value ratio of 5% or more or an annual trading value of 300 trillion won for futures and 9 trillion won for options will also be excluded from the tax exemption. This will apply to transfers made on or after April 1.

However, there are concerns that such measures might inadvertently dampen stock market trading. Regarding this, Ko Gwang-hyo, Director of the Income and Corporate Tax Bureau at the Ministry of Economy and Finance, explained, "Since the restriction is mainly on stocks with sufficient trading volume, it is unlikely to affect general investors' market transactions," adding, "The trading value of market makers accounts for less than 1% of the total trading value in the stock market, so the impact on the stock market is not significant." He further stated, "If market-making activities focus on stocks with insufficient liquidity in the future, overall market efficiency could rather be improved."

When asked about the tax revenue effect of this reduction in tax exemption benefits, he said, "It is difficult to estimate yet as it depends on the trading volume."

The Ministry of Economy and Finance also decided to adjust the interest rates applied when calculating national tax and customs refund surcharges or deemed rental income on real estate lease deposits in line with market interest rate trends. Previously, the average interest rate on time deposits was considered and adjusted annually (1.8% last year), but reflecting recent market interest rate trends, the interest rate will be lowered to 1.2%. The refund surcharge will apply from the period after the enforcement date of the rules, and the deemed rental income on real estate will apply from the taxable year starting after January 1.

Furthermore, the integrated investment tax credit applied to new growth technology commercialization facilities will be expanded to include related facilities such as system semiconductors, carbon dioxide reduction, and solar cells, increasing to 158 facilities across 10 fields.

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