Disagreement on Forcing Financial Investment Tax Even Among Opposition... Ruling Party Pressures "Democratic Party Must Cooperate"

Opposition Within Party Grows
Sung Il-jong: "In Crisis, Protect Investors
and Request Tax Deferral Cooperation from Opposition"

[Image source=Yonhap News]

[Asia Economy Reporter Koo Chae-eun] Despite opposition from the government and the ruling party, the Democratic Party of Korea has indicated it will push forward with the introduction of the financial investment income tax (Geumtu Tax) starting January next year. However, behind the scenes, voices are growing louder to delay the implementation date, considering the opposition from ‘Donghak Ants’ investors and the instability of the capital market. While maintaining the overall framework of the system, there is a detectable shift in sentiment that a compromise between the ruling and opposition parties on the timing of introduction may emerge.

According to a compilation of reports on the 14th, despite the Democratic Party’s earlier stance to proceed in January, opposition voices calling for adjustments in light of changing market conditions have not subsided. A Democratic Party lawmaker who requested anonymity said, "We need time to check the readiness of securities firms and consider the worsening capital market conditions," adding, "Since the tax subcommittee was formed, there are many issues to review, such as whether the major shareholder threshold (KRW 10 billion per stock) is appropriate, and how far to retroactively apply carryover losses given the poor stock market performance this year," expressing opposition to the party’s policy committee decision.

The backlash from small investors and even Democratic Party members opposing the tax is also a burden for the party. A petition titled ‘Please postpone the Geumtu Tax, which has no justification or practical benefit,’ posted on the National Assembly’s public petition board, gathered 50,000 signatures?the threshold for referral to a standing committee?in just two weeks. The petitioners cited the precedent of Taiwan, which introduced a capital gains tax on stocks in 1989 but saw stock prices plunge nearly 40% within a month and repealed the system after one year.

The Geumtu Tax is a system that imposes a 20% tax on capital gains from financial investments such as stocks, bonds, and funds exceeding KRW 50 million annually (25% on gains exceeding KRW 300 million). Initially passed through bipartisan agreement in 2020 and scheduled for implementation in January next year, the issue became contentious after the government proposed a tax law amendment bill that included a two-year postponement. The government argues that "given the increasing volatility in the macroeconomic financial market, taxation should be approached cautiously," advocating for a delay, while the Democratic Party has opposed the delay, citing it as a ‘tax cut for the wealthy.’

There is also concern that if high-net-worth investors engage in large-scale sell-offs to avoid the Geumtu Tax, it could negatively impact the stock market. Within the party, worries persist that if major domestic investors shift heavily to overseas stocks, it could adversely affect the KRW-USD exchange rate. A Democratic Party lawmaker with a financial background said, "Even if the number of taxpayers with capital gains exceeding KRW 50 million is not large, it could still affect investor sentiment."

The People Power Party is also increasing pressure. On the same day, Policy Committee Chairperson Sung Il-jong issued a statement regarding the postponement of the Geumtu Tax, saying, "In the midst of a global economic crisis, postponing the Geumtu Tax to protect stock investors and stabilize the capital market is not a matter of ruling or opposition," and argued, "If the Geumtu Tax is introduced, the number of taxable individuals will increase about tenfold, and the tax burden on the public will increase by KRW 1.5 trillion."

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