The government and the ruling and opposition political parties will push to amend the law to raise the tax-exempt contribution limits for the Individual Comprehensive Asset Management Account (ISA) and to establish a domestic investment-type ISA. This was previously scrapped last month due to opposition from the Democratic Party, but voices within the party have recently called for increasing the limits, viewing it as a way to attract investor support in the election phase. However, the party's policy committee maintains a negative stance. Nevertheless, there are also observations that the direction might change based on the decision of leader Lee Jae-myung, similar to the abolition of the financial investment income tax.
◇ The government re-promotes while opposition lawmakers also propose a bill
According to reports by ChosunBiz on the 19th, Lim Kwang-hyun, a Democratic Party lawmaker and secretary of the party's salary defense team, is preparing to present a bill to expand tax support for ISA through amendments to the Restriction of Special Taxation Act. The key point is to increase the ISA contribution and tax-exempt limits as the government intends, while adding 'youth' and 'newlywed' types to the categories of tax-exempt benefits.
The youth type applies a tax-exempt limit of 10 million won for those aged 15 to 34 who had earned income in the previous year. The newlywed type targets couples within 7 years of their marriage registration date, establishing a total tax-exempt limit of 16 million won, with each spouse receiving 8 million won each. If there are children under 6 years old, the limit is applied as 9 million won each for one child and 10 million won each for two children.
Other details are the same as the '2025 Economic Policy Direction' announced by the government in January of this year. The contribution limit will double from 20 million won to 40 million won per year. The total contribution limit over five years will also increase from 100 million won to 200 million won. The tax-exempt limits will similarly be raised as follows: general type from 2 million won to 5 million won; low-income and farming/fishing type from 4 million won to 10 million won.
Democratic Party lawmaker Lee So-young also recently proposed an amendment to the Special Taxation Act centered on expanding the tax-exempt limits. The main point is to expand the tax-exempt limit by 1 million won per year for ISAs held for more than three years. During last year's arguments within the party regarding the financial investment tax, Lee publicly advocates for its 'abolition.' The party delegated decision-making power to leader Lee, ultimately turning towards the abolition of the financial investment tax, contrary to the previous party stance.
◇ "Stimulating the domestic stock market"… financial income taxpayers can also join
The government's push for expanded ISA benefits is aimed at 'stimulating the domestic stock market.' According to the Bank of Korea, the balance of foreign currency securities held by individuals surged from $76.7 billion at the end of 2022 to $104.2 billion at the end of 2023, and then to $158.7 billion at the end of last year. The number of ISA subscribers accounted for by the Korea Financial Investment Association in January this year was 5.96 million, a decrease from 5.98 million in December of last year. This indicates that domestic investors are turning their eyes toward overseas investments, and the preference for ISA has also declined.
The government believes these measures will lead to an increase in national asset accumulation. In particular, it has decided to promote the establishment of a domestic investment-type ISA to supply liquidity to the domestic stock market. If the policy is implemented, even those classified as financial income taxpayers, who previously could not subscribe to an ISA, will be able to join the domestic investment-type ISA.
◇ Even if the opposition policy committee disagrees… "If Lee decides, it will go through"
The key issue is the internal atmosphere within the Democratic Party. The policy committee, which oversees party policies, is drawing a line, stating, 'individual lawmakers' legislative efforts.' It initially considered expanding the ISA limits based on the 'implementation of the financial investment tax,' but with leader Lee's decision last November to abolish the financial investment tax, there is no justification to increase tax cut benefits further.
Last month, the National Assembly's Strategy and Finance Committee rejected the amendment to the Special Taxation Act, citing 'wealth tax cuts.' The proposed benefits of raising the limits ultimately focus on 'high-income earners with savings capacity.' Concerns have been raised that if investment funds do not flow into the domestic capital market, it would contradict the purpose of the law amendment, and there is also a lack of proper measures to address a decrease in tax revenue.
Jin Sung-jun, chairman of the Democratic Party's policy committee, stated at a press conference the day before that, 'raising the ISA tax-exempt limit was linked to the financial investment tax,' and added, 'the bill being pushed by some lawmakers is a personal legislative activity unrelated to party policy.' A Democratic Party official from the Strategy and Finance Committee also noted, 'Considering that there is no taxation on financial investment income, there is no reason to agree to grant tax benefits to comprehensive financial income taxpayers through ISA.'
Political attention is focused on 'Lee Jae-myung's words.' This is because Lee has made a series of decisions that overturn the party's previous stance, including the abolition of the financial investment tax and the postponement of taxation on cryptocurrency income. There are also efforts to promote what had been a 'sanctuary' of the progressive camp: 'inheritance tax reduction.' A lawmaker affiliated with the Strategy and Finance Committee stated in a call, 'The youth specialized ISA is ultimately aimed at securing votes from those in their 20s and 30s,' adding, 'Even if there are many opposing opinions, once the party leader decides, it will ultimately go through.'