Yoon: "Virtual Asset Tax Exemption Pledge Inflates Market Bubble"

Hana Financial Research Institute Pledge Review

Consciousness of 7 Million 2030 Investors
Tax Exemption Benefits Up to 50 Million KRW in Earnings
Careful Consideration Needed for Tax Cuts Similar to Stocks

Reconsideration Needed for Capital Gains Tax Abolition
Populism Controversy Arises, Timing Not Appropriate
Unable to Tax Chaebol Families

[Image source=Yonhap News]

[Asia Economy Reporter Sim Nayoung] A warning has emerged that President-elect Yoon Seok-yeol’s pledge of ‘tax exemption on virtual assets’ could instead inflate market bubbles. President-elect Yoon announced that he would "exempt virtual asset investment gains up to 50 million KRW from taxation" for the 7 million virtual asset investors, mainly in their 20s and 30s.

Currently, the basic deduction amount for virtual assets is 2.5 million KRW, but the key point is to raise this to 50 million KRW, which is applied to financial investment income such as stocks. The pledge was made with the intention of increasing individual investors’ market participation, protecting their rights, and simultaneously promoting industry development. However, experts say that potential problems arising if this pledge is realized must also be considered.

According to the financial sector on the 21st, a recent report titled ‘Capital Market Pledge Review’ by Hana Financial Research Institute pointed out, "It is necessary to be cautious about granting the same tax benefits to virtual assets as to stocks," adding, "Since it is unclear whether virtual assets are currencies used for transactions, safe assets similar to gold, or securities similar to stocks, prioritizing incentives could amplify market bubbles."

The unclear purpose of the tax reduction was also cited as a problem. The report stated, "For example, if there is a clear purpose such as insufficient investment and the need for smooth capital raising by companies, tax reductions on financial investments can be discussed," but countered, "If it is a simple industrial promotion logic like the virtual asset tax exemption pledge, then tax reduction logic should apply to all new industries." It argued that the perspectives of the private sector conducting business and the regulatory authorities overseeing the entire financial market should differ.

It was also advised to approach President-elect Yoon’s ‘abolition of stock transfer tax’ pledge, aimed at revitalizing the stock market, with caution. This pledge is based on the logic that increased demand for stocks will raise stock prices, strengthen the stock market foundation, and ultimately benefit retail investors. Currently, transfer tax is imposed only on major shareholders who hold more than 1% of shares or have holdings exceeding 1 billion KRW in specific stocks. From next year, transfer tax will be imposed if annual gains exceed 50 million KRW on all listed stocks (20% for taxable income up to 300 million KRW, 25% for amounts exceeding 300 million KRW).

The report said, "In the short term, to overcome COVID-19, and in the long term, due to the increasing national fiscal burden from an aging population, abolishing income tax cannot be free from criticism of populism." It added, "The recent decline in the stock market is due to a global quantitative easing-driven influx of money into the stock market, which is now being adjusted," and stated, "Using tax policies suitable only when the stock market is underdeveloped and needs to be strategically grown to raise corporate funds at this time is inconsistent."

There was also an opinion that abolishing capital gains tax should be cautious in light of the practices of large conglomerate families. It cited the example of conglomerate families establishing unlisted companies with personal funds, increasing their value, then listing and selling shares to secure cash and accumulate assets. The report suggested, "If capital gains tax is abolished, no taxes can be imposed on the conglomerate families," and recommended, "Since this could worsen issues of income inequality and fairness, necessary parts should be reconsidered."

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