The government and the ruling party disagreed on the introduction of separate taxation of dividends ahead of the first tax reform proposal by the Lee Jae-myung government. The Democratic Party requested the government to actively consider tax support for promoting domestic production in the national strategic technology industry.
Jin Sung-jun, the policy chair of the Democratic Party, and Democratic Party lawmakers belonging to the National Assembly's Strategy and Finance Committee held a closed-door meeting with the Ministry of Economy and Finance for over an hour at the National Assembly this morning.
Jung Tae-ho, a Democratic Party lawmaker and the ruling party's secretary of the committee, met with reporters after the meeting and said, "We received a report from the government regarding next year's tax reform plan," noting that both pros and cons regarding the separate taxation of dividends were raised at the meeting.
Jung said, "There are opinions that separate taxation of dividends is necessary for revitalizing the stock market and capital market, and on the other hand, there were discussions about whether benefits should also apply to amounts below 20 million won related to separate taxation." He explained that the opposing view argued that it was tried during the presidency of Park Geun-hye, but had little effect, and raised concerns that it might lead to tax cuts for the wealthy.
Under the current tax law, financial income (dividends and interest) is subject to a flat tax rate of 15.4% for amounts up to 20 million won annually, but for amounts exceeding that, it is combined with comprehensive income and taxed at a progressive rate of up to 49.5%. The government is reportedly reviewing a plan to separate the taxation of dividends and lower the upper limit.
This sparked divergent opinions within the party, with some openly stating, "The reform of the dividend income tax system should be approached cautiously (Jin Sung-jun, policy chair)," while others, such as Lee So-young of the Democratic Party, argued that it would provide incentives for the wealthy to distribute more and share profits through the capital market. On that day, they also communicated the internal disagreements to the government.
According to the lawmaker, the government stated that, broadly speaking, it is important to shift the flow of capital in our society from the real estate market to the capital market. Therefore, "with separate taxation of dividend income, the capital market will be revitalized, and it is necessary to create a capital environment that can promote strategic industries and advanced industries," he noted. He also emphasized that, "The president has mentioned this several times during the election and after taking office, which is a promise to the public." Since the last presidential election, President Lee Jae-myung has presented the separate taxation of dividends as a measure to revitalize the stock market. He also underscored on the 24th during a senior secretariat meeting that the reform of the dividend income tax system needs to be discussed from the perspective of improving the capital market system.
The ruling party also pointed out during the meeting that the 'domestic production promotion tax system' aimed at strengthening the domestic production base is not included in this tax reform proposal. The domestic production promotion tax system provides corporate tax deductions proportional to domestic production and sales when products are finally manufactured in the country and sold to domestic consumers. This is also part of President Lee Jae-myung's election pledge.
Jung said, "There was an opinion that the part of the advanced industry domestic production promotion tax system should be actively reviewed by the government for not being included in the tax reform proposal."
It seems that a consensus has been formed between the party and the government regarding the proposal to raise the corporate tax rate and to relax the requirements for major shareholders regarding the stock transfer tax.
Jung explained, "When corporate tax was reduced previously, there were many criticisms at that time in the National Assembly's Strategy and Finance Committee that the reduction does not directly lead to increased corporate investment. Therefore, this time, the increase in corporate tax rates is a normalization back to the level of 2022." He added, "The government said it is normalizing this because there were no effects from the tax reduction." The government previously raised the corporate tax rate from 24% to 25% in 2022 through tax reforms during Yoon Suk-yeol's administration, applying to large corporations with annual operating profits exceeding 300 billion won. This means reverting it back to the pre-increase level.
Regarding the relaxation of the major shareholder requirements for stock transfer income tax, he emphasized, "It was raised from 1 billion won to 5 billion won under the Yoon Suk-yeol administration, and this is also to normalize it to the previous form."
If tax reform takes place, Jung stated, "I understand that the scale of revenue changes will be about 7.5 trillion won."