Financial Investment Industry Calls for Introduction of Tax-Free Investment ISA

Policy Forum on Introducing Investment-type ISA Held on the 1st
ISA Expansion Needed for Asset Growth in Low Interest and Aging Era
Current System Less Attractive Compared to 2023 Financial Investment Income Tax
"Distinguish Investment and General ISA with Bold Tax Benefits Required"

The Korea Financial Investment Association held a policy forum on the 1st at the Bulls Hall in the Financial Investment Center, Yeouido, Seoul, titled "Policy Discussion for the Introduction of Investment-type ISA," to gather opinions on the necessity of introducing a "financial investment product dedicated long-term investment tax product" to revitalize the capital market and support national wealth formation. Before the forum, Na Jae-cheol, Chairman of the Korea Financial Investment Association (fifth from the right), and Assemblyman Lee Kwang-jae took a commemorative photo. Photo by Korea Financial Investment Association

[Asia Economy Reporter Minji Lee] There is a growing call for the introduction of a tax-exempt investment-type Individual Savings Account (ISA) to support individuals' wealth formation and to guide household assets, which are heavily concentrated in real estate and savings/deposits, into the capital market.

At the policy forum held on the 1st at the Bulls Hall in the Financial Investment Association Building in Yeouido, Seoul, titled ‘Introduction of Investment-type ISA,’ there was consensus that the introduction of investment-type ISA in an era of low interest rates and aging population should help expand the proportion of individuals' investment assets. Hwang Se-woon, Senior Research Fellow at the Korea Capital Market Institute, who gave the keynote presentation at the forum, said, “Although it is true that interest in stocks has recently increased and direct participation has actively expanded, when you look at retirement pensions, personal pensions, and ISA accounts, asset management is still centered on safe assets.”

The ISA system is a comprehensive asset management account that allows various financial products such as deposits, funds, and derivative-linked securities (DLS) to be managed in one account. As of the end of March, the subscription balance was about 7.8 trillion won, with approximately 1.918 million accounts. Following last year's tax law revision, which abolished the sunset clause, expanded eligibility, and allowed stock inclusion, an investment brokerage-type ISA was added this year to the existing discretionary and trust-type ISAs. Although the number of investment brokerage-type ISA subscribers is increasing as public interest in stock investment grows, the proportion of safe assets held within the accounts remains overwhelmingly high.

Looking at overseas cases, restrictions are placed on safe asset investments within ISA-eligible assets to align with the purpose of asset growth. In Japan's ISA system, eligible assets include only listed stocks, exchange-traded funds (ETFs), and public funds, excluding deposits and bonds. In the UK, ISAs are divided into deposit-type and securities-type, allowing choice, with securities-type ISAs permitting investment only in listed stocks, funds, insurance, and bonds. Regarding tax benefits, both the UK and Japan apply tax exemption on all income generated from contributions.

Research Fellow Hwang pointed out, “Looking at the domestic ISA balance, the proportion of deposits and savings is the largest at 72%, and adding money market funds (MMF) and repurchase agreements (RP), the proportion of safe assets reaches 82%. If operated in a way that encompasses both deposits and investment products in one account, it will be difficult to change the current situation where deposits dominate.” He added, “The current ISA has lower tax benefits than the financial investment income tax system (which allows a basic deduction of 50 million won on financial investment income) to be implemented in 2023, which will further reduce investment incentives.”

In response, Hwang proposed restructuring the current ISA system into investment-type and general-type focused on safe assets, allowing subscribers to choose according to their purpose. He also explained that providing exceptional tax benefits for investment-type ISA would increase its attractiveness. He suggested maintaining the current annual contribution limit of 20 million won, regulating the tax system separately from the financial investment income tax system starting in 2023, and considering the issue of tax revenue reduction. Hwang said, “Since a high level of income deduction is allowed with a basic deduction of 50 million won on financial investment income, even if full tax exemption benefits are given on the 20 million won annual limit, it will not practically lead to a decrease in tax revenue.”

It is expected that the introduction of a tax-exempt investment-type ISA will also promote the growth of the capital market. If household assets concentrated in real estate and savings/deposits flow into the capital market, it is anticipated that a stable investor base within the capital market will also expand. Hwang said, “If the proportion of risky assets increases in a rational and planned manner, the long-term returns of total financial assets can be greatly improved.”

Consensus on Introducing Tax-Exempt Investment-Type ISA... "Policy Direction to be Included in July Tax Law Revision"

On the 1st, the Korea Financial Investment Association held a "Policy Forum for the Introduction of Investment-type ISA" at the Bulls Hall in the Financial Investment Center, Yeouido, Seoul, to gather opinions on the necessity of introducing a "financial investment product dedicated long-term investment tax product" to revitalize the capital market and support national wealth formation.
Senior Research Fellow Hwang Se-woon of the Korea Capital Market Institute presented, and discussants included Park Young-seok, President of the Korea Capital Market Institute; Yang Soon-pil, Director of Financial Taxation Division at the Ministry of Strategy and Finance; Go Sang-beom, Director of Asset Management Division at the Financial Services Commission; Professor Park Hoon of the University of Seoul; Kim Sung-bong, Product Support Manager at Samsung Securities; and Kang Hyung-gu, Secretary General of the Financial Consumers Federation.
Photo by Korea Financial Investment Association

Participants at the forum agreed on the necessity of introducing a tax-exempt investment-type ISA. Professor Park Hoon of the Department of Taxation at the University of Seoul, who attended the forum, said, “The average interest rate on domestic fixed deposits changed from 5% in 2000-2008 to 0.8% last year, indicating that the low-interest rate trend may become entrenched. With the introduction of the financial investment income tax in 2023, expanding ISA will become meaningless, so discussions on introducing investment-type ISA are timely.”

There was also an opinion that expanding the contribution limit in the mid-to-long term is necessary. Kim Seong-bong, Product Support Manager at Samsung Securities, said, “Since financial assets are expected to continue increasing, the maximum contribution limit should be raised and responses should be made according to market conditions.” Currently, ISA accounts allow investments up to 100 million won with an annual limit of 20 million won. Kim added, “For minors, the system should be revised to allow small-amount ISA account subscriptions so that they can learn financial investment early. If investment-type and general-type ISAs are prepared, it would be good to allow investors to subscribe to both according to their purposes.”

Financial authorities agreed on the necessity of tax benefits for ISAs but said that the level of tax support needs careful consideration. Ko Sang-beom, Director of Asset Management at the Financial Services Commission, said, “The rapid increase in subscribers after the introduction of investment brokerage-type ISA means that general investors are sensitive to investment product incentives. After the reform of the financial investment income tax system, if incentives for ISA are not active, there is a realistic concern that funds will return to deposits and savings.” He also said, “Regarding the expansion of investment limits and tax-exempt limits, it could be a burden from the tax authorities' perspective, so it is a matter to be further considered by looking at overseas cases.”

Yang Soon-pil, Director of Financial Taxation at the Ministry of Strategy and Finance, said, “Since the policy direction will be presented with the tax law revision announcement in July, it is difficult to make premature statements about investment-type ISA. However, since a basic deduction of 50 million won on listed stocks will be implemented in 2023, we are examining how to distinguish this and how to treat carryforward losses.”

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