The stock price has reflected the proposal of lawmaker Lee So-young, but if the atmosphere is clear that it would be unreasonable to adopt this proposal as the government's plan... what about the stock price?
This is a post made by economic commentator Yoon Ji-ho, who previously served as head of retail division at LS SECURITIES, on his Facebook on the 21st. Commentator Yoon is known for observing the wishes of stock investors so well that he earned the nickname 'Yeouido Compass' after guarding the Yeouido securities scene for 30 years.
The article mentioned by commentator Yoon states that the 'separate taxation of dividend income' plan promoted by lawmaker Lee So-young has been embroiled in tax cut controversies. With opposition voices emerging within the ruling party, it has become difficult for the original proposal from lawmaker Lee So-young to pass. Such predictions are becoming a reality.
The separate taxation of dividend income is a scheme that imposes lower tax rates on the dividend income of listed company stock investors, separating it from labor and interest income. As the amount increases, it does not apply to the progressive tax system where taxes increase progressively, thus reducing the tax burden.
President Lee Jae-myung has presented the 'KOSPI 5000 era' as a promise. The separate taxation of dividend income, a wish of stock investors, has also been promoted as one of the key policies for the KOSPI 5000 era.
Currently, where the separate taxation of dividend income has not been introduced, if the annual dividend and interest income is below 20 million won, it is taxed at a low rate of 14%, and if it exceeds 20 million won, the top tax rate of 45% is applied. Investors whose dividend and interest income exceeds 20 million won annually number around 280,000. In the securities industry, especially individual investors, have argued that the high taxation on dividend income is the reason for the Korean stock market's neglect, calling for separate taxation of dividend income.
Lawmaker Lee So-young proposed a revision to the Income Tax Act to promote separate taxation of dividend income. The plan is to reduce the tax rate to a maximum of 25% for listed companies with a dividend payout ratio of over 35% of their net profit. Lawmaker Lee So-young's proposal was considered an official proposal from the government and the ruling party.
However, on the 25th, Democratic Party policy chief Jin Sung-jun released a statement, changing the atmosphere. Chairman Jung said, "(With the separate taxation of dividend income) only a very small number of stock conglomerates will benefit, while the majority of small investors will receive no benefits," reiterating the past argument that separate taxation of dividend income is a 'tax cut for the rich'. He also mentioned statistics from the National Tax Service that the top 0.1% obtained 45.9% of total dividend income as of 2023.
Lawmaker Lee So-young countered on Facebook, stating, "Viewing it solely as a tax cut for the rich is a very narrow perspective," adding, "Rather, it is appropriate to see it as a policy that 'gives incentives to the rich to induce distribution.'" She believes that the argument of it being a tax cut for the rich is not valid because as corporations' dividend payout ratios increase, pension funds like the National Pension Service receive more dividends.
However, within the ruling party, there is a tendency to weigh more heavily on Chairman Jin's criticism of the tax cut than on lawmaker Lee. There is also a high possibility that the maximum tax rate for the separate taxation of dividend income could be higher than lawmaker Lee So-young's proposal. Some members of the ruling party have also pointed out that the maximum rate should be raised to 35%.
Including the local income tax, which corresponds to 10% of the tax amount, the effective maximum rate rises to 38.5%. This has raised concerns that the proposal has moved further away from President Lee's ambitions to usher in the KOSPI 5000 era, considering it is 11 percentage points lower than the existing comprehensive taxation of financial income. Commentator Yoon Ji-ho left a short comment on the 27th on his Facebook, stating that the maximum tax rate for separate taxation of dividend income would rise to 35%, calling it 'below expectations.'