[Column] Stock Market Already Weak, Now Financial Investment Tax... Retail Investors Losing Ground

[Asia Economy Reporter Kwon Jae-hee] "Please postpone the financial investment income tax (Geumtu Tax) that has neither justification nor practical benefit."

This petition, recently posted on the National Agreement Petition platform, surpassed 10,000 supporters within a week. It reflects the sentiment of individual investors ahead of the introduction of the Geumtu Tax.

The Geumtu Tax is designed to impose taxes on investors who earn profits exceeding a certain amount from financial investments such as stocks, bonds, funds, and derivatives (50 million KRW annually for stocks, 2.5 million KRW for overseas stocks, derivatives, and other financial investment income). The tax is levied separately with a progressive rate of 20% for taxable income up to 300 million KRW and 25% for amounts exceeding 300 million KRW. Originally scheduled to be implemented from January next year, the government and ruling party proposed a two-year postponement, while the opposition party, the Democratic Party of Korea, insists on proceeding with the original plan. It is reported that the opposition party does not intend to pass the two-year postponement during the upcoming budget and tax law review process next month. Currently, with the opposition party holding the majority in the National Assembly, the introduction of the Geumtu Tax next year seems inevitable.

The opposition's argument is as follows: only 0.8% of investors earn more than 50 million KRW annually from financial investments, so the tax does not apply to small-scale individual investors. They also claim that the reduction in securities transaction tax rates, introduced alongside the Geumtu Tax, will not negatively affect the majority of individual investors.

However, voices from inside and outside the industry criticize this as "completely out of touch with reality." First, the Geumtu Tax is imposed only on individual investors, excluding foreigners and institutions, which is seen as fostering reverse discrimination. An industry insider pointed out, "The opposition frames it as a tax on a few 'big players' among individual investors, but foreigners who invest much larger amounts enjoy capital gains tax exemptions and securities transaction tax reductions, which actually promotes reverse discrimination." According to the Financial Supervisory Service, as of last month, foreigners held domestic stocks worth approximately 550 trillion KRW.

There is another pitfall in introducing the Geumtu Tax. If implemented, it could trigger a 'year-end effect' where investors sell stocks from the second half of the year to reduce taxes. During the COVID-19 pandemic, the KOSPI index reached a high of 3,300 points not because of significantly increased corporate profits but due to abundant liquidity supplied to the market. To revitalize the Korean stock market, trading must be encouraged, but the introduction of the Geumtu Tax may discourage stock trading due to tax concerns, or lead investors to move to overseas markets such as the U.S. It is a foreseeable scenario that liquidity inflow into the Korean stock market will decrease due to the year-end effect, further depressing the market.

The Geumtu Tax concerns the livelihoods of 10 million individual investors. This year, due to global interest rate hikes and the Russia-Ukraine war, the KOSPI has fallen more sharply than other countries' stock markets. It is like removing a ventilator when cardiopulmonary resuscitation is still needed. The political disputes between the ruling and opposition parties ultimately harm individual investors.

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