As the government floated a plan to toughen capital gains taxes on overseas stocks amid a high exchange rate threatening 1,500 won, Korean retail investors trading U.S. stocks erupted. The core complaint is that the government is trying to block only overseas investment with taxes "without improving the fundamental environment that is sending funds from the domestic market overseas."
Koo Yun-cheol, Deputy Prime Minister for Economic Affairs and Minister of the Ministry of Economy and Finance, said at a currency-related press briefing on the 26th that the government is "not considering it now," when asked whether it could toughen capital gains taxes on overseas stocks, but also noted, "If conditions allow, we can consider it at any time." In effect, the government has put additional taxation on the table as an official option.
The government believes that if it raises only the tax rate on overseas stocks, funds from Korean retail investors trading U.S. stocks will return to the domestic stock market. Currently, investors pay a 22% capital gains tax on annual gains exceeding 2.5 million won from overseas stocks, and the government's idea is to induce a domestic MoneyMove (asset shift) even by raising that further.
Underlying this is the calculation that investments in the United States by Korean retail investors trading U.S. stocks are a main cause of the high exchange rate. According to the International Finance Center, net purchases of overseas stocks by individuals in October reached $6.81 billion, the largest ever, and funds flowing into the United States alone were $6.85 billion. The analysis is that as Korean retail investors trading U.S. stocks invested in the United States, demand for dollars surged, which had a significant impact on the high exchange rate.
Investors are venting anger at the government's remarks as "effectively a law banning Korean retail investors trading U.S. stocks." Observers note that the 22% rate applied to capital gains on overseas stocks is high compared with major countries. There is also criticism that the government is responding only by strengthening taxation on investors rather than addressing the structural causes of the high exchange rate.
A person surnamed Cho, 30, who mainly invests in U.S. tech stocks such as Nvidia, said, "The idea that raising taxes will bring Korean retail investors trading U.S. stocks back to the domestic market is far too simplistic."
An internet user who said in an online community that this person invests in U.S. stocks also criticized, saying, "It is not understandable that the government wants to tighten overseas investment without creating incentives to invest in domestic corporations," and added, "They are scapegoating individual investors as the culprits of the high exchange rate."
On the Seoul foreign exchange market that day, the won-dollar exchange rate closed weekly trading at 1,464.9 won per dollar, down 0.7 won from the previous session. The won-dollar rate, which rose more than 40 won this month alone, closed at 1,477.1 won on the 24th, marking a record high in about seven months since Apr. 9 (1,484.1 won). As the won-dollar rate soared to as high as 1,479.4 won intraday, the foreign exchange authorities and the National Pension Service formed a "four-party consultative body on exchange rates" on the 24th to stabilize the market.
Meanwhile, the Ministry of Economy and Finance issued a press clarification that day, saying, "The government has never reviewed additional taxation of capital gains on overseas stocks to defend the exchange rate."