As President Lee Jae-myung officially articulated the necessity for reforming the dividends tax system, opinions within the ruling party are divided. Contrary to the government's vision that it will serve as a catalyst for revitalizing the capital market, the chairperson of the Democratic Party of Korea's policy committee publicly opposed it, stating, "Benefits may be concentrated among a very small number of high-income earners." Ahead of the announcement of the government's first tax reform bill under the banner of 'the era of KOSPI 5000', the internal dynamics of the ruling party seem to be diversifying.
Jin Sung-joon, the chairperson of the Democratic Party's policy committee, emphasized in a statement released on the 25th that "the reform of the dividends tax system should be approached with caution," noting that "if not, only a very small number of stock magnates will benefit while the majority of retail investors will not see any substantial benefits at all."
According to Jin, as of 2023, the top 0.1% (17,464 people) account for 45.9% of total dividends income, equating to 138.42 trillion won. On average, this amounts to approximately 795 million won per person. If the range is widened to the top 1%, they account for 67.5% (203.91 trillion won) of dividends income, meaning that 1 out of every 100 stock investors receives 70% of all dividends. In contrast, the bottom 50% of total dividends income, roughly 8.73 million people, share only 0.35% (10.64 billion won) of the total. The average dividends income per person is around 12,177 won.
Jin asserted, "Even if the tax reform increases dividends, if retail investors only see a few thousand won in profit while a very small number of conglomerates reap profits of several billion won, can we really say that it is fair?" He stressed that the tax reform must ensure equity.
This effectively contradicts President Lee's remarks the previous day, reaffirming the intention to introduce separate taxation for dividends income.
On the 24th, President Lee chaired a meeting of senior aides at the presidential office, stating, "Improvements to the capital market system have a dual effect of increasing investments in innovative companies for new growth while also increasing the income of ordinary individual investors," and added that "reforming the dividends tax system needs to be discussed from this perspective."
Since the last presidential election, President Lee has proposed separate taxation on dividends income as a means to revitalize the stock market. On the 11th of last month, during a visit to the Korea Exchange, he stated, "We are preparing tax reforms to promote dividends," revealing related details directly. At that time, President Lee also mentioned an amendment to the Income Tax Act proposed by Democratic Party lawmaker Lee So-young, which aims to apply separate taxation to corporations with a dividend payout ratio exceeding 35% and to reduce the maximum tax rate to 27.5%.
Under current tax laws, financial income (dividends and interest) is subject to a flat tax rate of 15.4% for amounts up to 20 million won per year, but when exceeding this limit, it is combined with overall income and subject to a progressive tax rate of up to 49.5%. The government is considering lowering this upper limit to around 30%.
In contrast, some members of the ruling party sense a mood of concern regarding tax equity and political burden regarding the separate taxation of dividends income.
Kim Byung-ki, the acting representative of the Democratic Party, also emphasized at the Supreme Council meeting on this day that "the national finances are in crisis," stating that it is necessary to normalize the tax system to fundamentally resolve the tax revenue disaster during the Yoon Suk-yeol administration. He announced plans to establish a "special organization for tax reform."
The first tax reform bill being prepared by the Lee Jae-myung administration is expected to be announced at the end of this month. In addition to the dividends tax system, sensitive issues such as corporate tax increases are also included. Despite promises regarding the 'KOSPI 5000 era' and the national task of advancing the capital market, conflicts arising from concerns over tax equity are anticipated during the actual legislative discussion process.
Park Sang-hyuk, the spokesperson of the Democratic Party, met with reporters to explain the background of establishing a 'special organization for tax reform,' stating, "In the process of discussing tax reforms, the party is expected to actively solicit opinions and play a role in providing feedback."