"Lower Maximum Tax Rate" and "Full Separate Taxation"... Ruling and Opposition Parties Compete to Cut Dividend Taxes

Democratic Party Focuses on Expanding Scope of Separate Taxation
and Lowering Maximum Tax Rate
People Power Party Proposes Bill for Full-Scale Separate Taxation

Both the ruling and opposition parties are consecutively introducing bills aimed at reducing the dividend tax rate for stock investors. While the government's proposal establishes separate taxation for dividend income as the default, some bills go further by lowering the tax rate or fully expanding the scope of separate taxation.

According to the National Assembly's legislative information system on October 1, Lim Ija, chairperson of the National Assembly’s Strategy and Finance Committee and a member of the People Power Party, sponsored a partial amendment to the Income Tax Act the previous day. This bill calls for all domestic stock dividend income to be subject to separate taxation.

Yonhap News Agency

Under current law, dividend income is subject to withholding at a rate of 14% (excluding local taxes). If annual dividend income exceeds 20 million won, it is combined with other income and taxed at rates up to 49.5%. In July, the government proposed a new system for separate taxation of dividend income: 14% for income up to 20 million won, 20% for income over 20 million won and less than 300 million won, and 35% for income over 300 million won. The proposal would apply only to the incremental amount for companies with a dividend payout ratio of 40% or higher, or for those with a payout ratio of at least 25% and a dividend growth rate exceeding a certain threshold.

In contrast, Assemblywoman Lim’s bill would apply separate taxation to all domestic dividend income and lower the tax rates to 9% for income up to 20 million won and 25% for income over 300 million won, making them lower than the government proposal. The intention is to increase the perceived benefit for individual investors and provide major shareholders with an incentive to remain in the stock market. A representative from Lim’s office explained, "By aligning the maximum tax rate with the 25% rate for capital gains tax, investors can choose between dividends and stock sales."

Assemblyman Yoo Sangbum of the People Power Party has submitted a separate amendment allowing separate taxation for dividend income from high-dividend companies. If a company meets both a dividend payout ratio of at least 30% and a total dividend increase rate of at least 10% compared to the previous three-year average, tax rates of 9% for income up to 20 million won, 14% for income over 20 million won and up to 50 million won, and 20% for income over 50 million won would apply. Major shareholders holding 10% or more of a company’s shares would be excluded.

On the 7th, an emergency roundtable on the 2025 tax reform plan, involving the Democratic Party and other progressive groups, was held at the National Assembly Members' Office Building. August 7, 2025. Photo by Kim Hyunmin

Lawmakers from the Democratic Party have focused on expanding the scope of separate taxation and lowering the highest tax rate compared to the government’s proposal. Assemblyman Ahn Dogeol, a member of the Strategy and Finance Committee, proposed allowing separate taxation for the entire dividend amount if a company has a dividend payout ratio of at least 35%, or at least 25% with a dividend growth rate exceeding a certain threshold. The proposed tax rates are 9% for income up to 20 million won and 30% for income over 300 million won, both lower than the government’s plan. Assemblywoman Kim Hyunjung proposed lowering the maximum tax rate even further to 25%. The aim is to encourage major shareholders to increase dividends and to promote long-term investment. The scope of separate taxation would be the same as in Assemblyman Ahn’s bill.

Although the details differ, there is consensus on the need to reduce dividend taxes, leading to expectations that related bills will pass during this regular session of the National Assembly. A Democratic Party member of the Strategy and Finance Committee stated, "It is necessary to maintain the current momentum in the stock market, so at minimum, we should be able to reach the government’s proposal." However, there is significant disagreement between the parties regarding full-scale separate taxation. The ruling party argues that "it is realistic to provide benefits only to companies capable of increasing dividends," while the opposition insists that "full separate taxation must be implemented to both secure tax revenue and enhance the effectiveness of tax benefits."

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