Listed Companies Association: "Long-Term Stock Investors Should Receive Benefits in Voting Rights, Dividends, and Taxation"

The Korea Listed Companies Association stated on November 20 that, in order to achieve KOSPI 5000, long-term investors should be provided with benefits in terms of voting rights, dividends, and taxation.

According to the report "A Study on Systems for Long-Term Shareholding by Shareholders," authored by Professor Choi Seungjae of Sejong University’s Department of Law at the request of the Korea Listed Companies Association and the Korea Listed Companies Policy Research Institute, Korea's stock market turnover rate stood at 200.8 as of last year. This is approximately three times higher than that of the United States (68.5) and 1.7 times higher than that of Japan (117.0). Since 2020, the influx of individual investors has surged, shortening the average stock holding period to 2.7 months for KOSPI and 1.1 months for KOSDAQ, further expanding short-term trading.

The report analyzed that the expansion of short-term trading has a negative impact on the market. The reasons cited include: ▲ a sharp decline in research and development (R&D) investment and weakening of manufacturing competitiveness due to intensified short-term performance orientation; ▲ the undermining of market efficiency caused by herd behavior among individual investors; and ▲ the breakdown of trust between management and shareholders.

The association emphasized, "In Korea, where high value-added industries are prevalent and it is highly likely that the management team at the time of investment and at the time of exit will differ, companies are abandoning long-term R&D and focusing solely on short-term stock price increases. As shareholder-centered management is strengthened, genuine individual investors, who are at a disadvantage in terms of information and tend to trade short-term, are being marginalized, while institutions and speculative forces dominate, resulting in a structural contradiction."

To address these issues, the association suggested that measures should be taken to encourage long-term investment by providing incentives in terms of voting rights, dividends, and taxation.

First, it emphasized the need to expand the influence of long-term shareholders by introducing the French-style "tenure voting" system. The association explained, "France, through the Florange Law, automatically grants two voting rights per share to shareholders who have held their shares for more than two years. This helps limit the influence of short-term speculative capital and strengthens the voice of shareholders interested in the long-term growth of companies."

The association also stressed the need for a system that allows long-term holders to choose separate taxation for dividend income. Currently, dividend income is subject to a withholding tax rate of 14% (excluding local income tax) under separate taxation. If the combined amount of interest and dividend income exceeds 20 million won, it is subject to comprehensive financial income taxation, with a progressive tax rate of up to 45% (excluding local income tax).

The association stated, "Both the government and legislative proposals currently under discussion regarding dividend income tax are based on 'dividend payout ratio.' However, the dividend payout ratio is a variable that changes depending on internal corporate conditions and the policy decisions of management. Instead, the option for separate taxation should be based on the shareholder's holding period, not the dividend payout ratio."

Finally, the association suggested a phased reduction of capital gains tax based on the holding period. For domestic stock capital gains, it proposed a deduction of 3% of the tax amount for holdings of three years or more, 7% for five years or more, and 10% for ten years or more.

Kim Choon, Head of Policy Division 1 at the Korea Listed Companies Association, said, "The Kansai Economic Federation of Japan recently suggested that stable, long-term shareholders are a major pillar for enhancing corporate value and proposed tax benefits for long-term holders. In Korea as well, it is urgent to foster a long-term investment culture that supports companies’ medium- and long-term strategic management."

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