The new government has set an ambitious goal to promote stocks as a means for household asset growth instead of real estate, but signs of a backlash are already emerging. Discussions have begun on strengthening the taxation standards for major shareholders, which may trigger a year-end stock sell-off, and the debate on providing tax incentives for dividends appears to be retreating.
The stock market continues its upward rally, driven by expectations of a revision in the Commercial Act aimed at activating the stock market, but concerns are rising that discussions about taxation in a direction contrary to investor expectations could dampen market enthusiasm.
According to political and financial investment circles on the 27th, the government is expected to soon announce its first tax reform plan under the new administration. The key point of this tax reform plan is 'tax increases.' It is reported that this includes reverting the standards for imposing capital gains tax on major shareholders from the current holdings of $4 million per stock to the previous threshold of $800,000 per stock, and raising the current securities transaction tax from 0.15% to 0.18%.
The securities transaction tax is a tax imposed when stocks are sold regardless of profitability, making it a burden on investors. There are concerns that strengthening the standards for major shareholders could lead them to sell their holdings to avoid taxes right before the year-end, resulting in losses for small investors.
The expected separate taxation on dividend income appears to be retreating. Contrary to initial hopes, it is reported that the government plans not to apply separate taxation to major shareholders. Investors are worried that if there are no benefits for major shareholders, dividends will not be increased.
The separate taxation on dividend income applies to listed companies with a payout ratio (the proportion of dividend to net profit) of more than 40%. In such cases, rather than applying an income tax rate of 6% to 45% by aggregating with other incomes, a separate tax rate of 10% to 20% is applied.
Moreover, there are discussions about taxing reduced dividends. Reduced dividends are distributed using capital reserve funds, which unlike regular dividends, have a tax rate of 0%. Due to this tax exemption, there has been a significant increase in listed companies conducting reduced dividends recently. However, the government is considering taxation due to concerns that reduced dividends could be misused as a tax evasion method by major shareholders.
In response, the industry expresses evaluations that the actual tax reform plan does not meet the expectations set when the new government promised to activate the capital market.
Um Su-jin, a researcher at Hanwha Investment & Securities, noted, "For corporations considering reduced dividends to respond to the value-up policy, there could be a problem of undermining one of the shareholder return measures for small shareholders." She expressed concern that "applying taxes uniformly to all reduced dividends could dampen the atmosphere of the domestic stock market, which has been revitalized after a long time."
The surge in high-dividend stocks that had skyrocketed since the new government took office also seems to have significantly faltered. Lee Kyung-min, a researcher at DAISHIN SECURITIES, analyzed, "As policy uncertainty increases, the anticipation for the previously reflected market support policy has retreated."