"Agricultural Special Tax, Gap with Reality of Popularizing Stock Trading... Should Be Reduced or Abolished"

[Asia Economy Reporter Kim Hyewon] In the context of the popularization of stock investment, there have been calls to lower the rural special tax (hereinafter referred to as the Rural Special Tax, NST) rate on stock transactions or to abolish it by integrating it with the base tax (securities transaction tax). It was also pointed out that a significant portion of the NST, amounting to trillions of won annually, is being transferred to other funds.

The Korea Economic Research Institute (KERI) stated this on the 28th through a report titled "Current Status and Improvement Measures of NST Related to Stock Investment," arguing that the imposition of the NST is anachronistic and violates the polluter pays principle.

The Largest Share of NST Total Revenue Comes from 41.9% of Total Securities Transaction Volume

The report analyzed that the largest portion of the NST total revenue comes from taxation on securities transaction amounts, accounting for 41.9% as of 2019. When the NST tax base is divided into national tax portions, the share is even higher at 59.2%. In 2019, the national tax portion of the NST collected was 2.7598 trillion won, of which 1.6349 trillion won (59.2%) was collected from the stock market.

Im Dongwon, a senior researcher at KERI, said, "Last year, the trading volume of the KOSPI market was 2,644 trillion won, more than double the previous year's 1,227 trillion won, and it is expected that more than 3 trillion won of NST will be collected from the stock market."

The report also pointed out that while the total revenue of the NST business account in this year's budget and fund operation plan increased by 9.8% compared to the previous year, NST revenue increased by 20.2%. Regarding this, Researcher Im viewed it as "an expansion in anticipation of an increase in NST related to the activation of stock trading." He further argued that since more than 60% of the NST business account's fiscal expenditure (total expenditure) is transferred to other funds, "NST is being excessively collected."

NST Viewed as a 'Luxury Tax' on Stock Trading, Calls for Reduction or Abolition

The report judged that the NST related to stock trading is disconnected from both the legislative purpose and the polluter pays principle. First, the NST was introduced in 1994 in connection with the Uruguay Round as a luxury and wealth tax on stock trading, but stocks have now become a financial investment tool for ordinary people, making the tax outdated and inconsistent with the times.

Additionally, since the NST was introduced to prevent rural economic stagnation and secure competitiveness, it is consistent with the polluter pays principle that the economic agents benefiting from market liberalization bear the tax burden, according to KERI's analysis. Ordinary stock investors cannot be beneficiaries of the liberalization, so the NST imposed on stock transactions has limitations in fulfilling the polluter (beneficiary) pays principle. Senior Researcher Im emphasized, "The NST related to stock investment is not in line with the times, and since stock investors are not the polluters (beneficiaries) of the NST, revision is absolutely necessary."

The report pointed out that to achieve the purpose of introducing financial investment income for stock market activation and to transition to an advanced financial tax system, additional reduction or abolition of the related NST (securities transaction tax) is necessary. To promote stock investment as emphasized by the government, it is necessary to lower the internationally high securities transaction tax compared to neighboring countries, and reducing or abolishing the NST related to the KOSPI market is a desirable policy direction.

Senior Researcher Im argued, "It is reasonable to integrate the NST related to stock investment, which is not borne by the polluter, with the base tax, the securities transaction tax, and reduce or abolish it," adding, "Considering that more than 60% of fiscal expenditure is transferred to other funds, NST is excessively collected, so reducing or abolishing the NST related to stock investment would have little impact." He also emphasized, "The government keeps the NST as is because many stock investors do not even know that NST is collected even when they incur losses, but this does not comply with the principle of equitable taxation, which requires tax burdens to be fairly imposed."

Furthermore, Im added, "In 2024, when the sunset clause of the NST expires, even if the system is maintained, it is necessary to accurately reassess who the beneficiaries of market liberalization are," and "It would be appropriate to reduce or abolish the NST currently imposed on stock transactions in the KOSPI market to align with changes in the times and taxation principles."

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