The 'dividend income separate taxation,' a key measure for 'value-up' enhancement of corporate value, has been ultimately scrapped due to opposition from opposition parties labeling it a 'tax cut for the wealthy.' Not only the separate taxation of dividend income, but also the expansion of tax support for the Individual Savings Account (ISA) to promote asset formation for the public, and the reform of the 'integrated employment tax credit' to encourage corporate employment expansion have all been nullified.
In the National Assembly plenary session on the 10th, a revised proposal for an amendment to the Restriction of Special Taxation Act passed with 178 in favor, 85 against, and 3 abstentions, out of 266 present members from a total of 300.
The most contentious issue in the amendment to the Special Taxation Restriction Act, designated as a budget accompanying bill, was the separate taxation of dividend income. The core of the amendment was to tax shareholder dividend income from value-up corporations at a low rate separately. Under current law, if the combined financial income, including dividend and interest income, exceeds 20 million won, it is combined with other comprehensive income and subjected to a maximum progressive tax rate of 49.5%. The government pushed for this with the expectation that separate taxation reducing the dividend income tax would incentivize individual investors to make long-term investments in domestic stocks.
However, the Democratic Party of Korea and other opposition parties criticized it as the 'ultimate tax cut for the ultra-rich' and removed this content in the final revisions. The revision stated, 'By deleting some of the original amendments aimed at easing the tax burden on financial income, we aim to enhance the vertical equity of tax burdens and ensure the nation's finances are effectively used to assist the more needy rather than being used as tax expenditures for the high-income class.'
The exclusion of ISA tax support expansion is not the only part that was left out. The plan to expand ISA tax support was also dropped. ISA is a so-called 'all-purpose account' that allows investments in various financial products like stocks, funds, and bonds under a single account to gain tax-saving effects. Upon joining ISA, investment amounts can become 'tax-exempt' (dividend and interest income), and the government aimed to increase these tax exemptions and contribution limits. They also planned to allow comprehensive financial income taxpayers, who were previously restricted from joining, to participate. Although it was a tax benefit plan to support asset formation for the public, it was nullified.
The integrated employment tax credit was no different. The government aimed to expand the benefits of the integrated employment tax credit to include small and medium-sized enterprises employing 'temporary and very short-time workers,' who were previously not eligible for tax credits, but this has also been maintained as is. In addition, the tax credit system for electronic filing of comprehensive income tax, corporate tax, and value-added tax, and the amendment to the overseas resource development investment tax credit system were also nullified in the final revisions.
Inside the government, there is a noticeable sense of dismay about the 'scrapping,' as there were some agreements between parties on issues like ISA and the integrated employment tax credit. An official from the Ministry of Economy and Finance, requesting anonymity, remarked, 'It feels like everything we were trying to push through has been entirely deleted rather than adjusted, and while it is hard to accept, there is no way around it given the political situation involving the impeachment nationwide.'