Following the announcement of the tax reform plan, the stock market plummeted, prompting the ruling party to announce that it would consider raising the criteria for major shareholders subject to the capital gains tax. The ruling party appears to be taking a step back in response to the sharp decline in the KOSPI index.
Kim Byeong-gi, the floor leader of the Democratic Party of Korea, posted on Facebook on the afternoon of the 1st, saying, "There are many voices of concern and worry regarding the tax reform plan," and added, "We will examine the possibility of raising the 1 billion won major shareholders' threshold, centered on the party's 'Tax Normalization Special Committee' and 'KOSPI 5000 Special Committee.'" He also noted, "We will focus on restoring investor trust through close consultations between the party and the government."
On that day, the KOSPI index closed down 126.03 points (3.88%) at 3119.41, marking the largest decline since the Lee Jae-myung administration began. The KOSDAQ index also closed down 32.45 points (4.03%) at 772.79.
The sharp decline in the stock market on that day is interpreted as a reflection of disappointment over the tax reform plan announced by the government the day before. The government announced that it would raise corporate taxes by 1 percentage point and increase the securities transaction tax by 0.1 percentage points. It also announced a plan to tighten the capital gains tax criteria for major shareholders from 5 billion won to 1 billion won.
Han Ji-young, a researcher at Kiwoom Securities, analyzed, "The stock market's decline today is a reflection of disappointment over the tax reform plan and a correction after the index has risen significantly." He noted, "Particularly, since this tax reform plan includes strengthening the criteria for major shareholders' capital gains tax, we are seeing a sluggish trend focused on large-cap stocks in the KOSPI and KOSDAQ, which had attracted a lot of individual investors." The number of supporters for the petition titled 'Opposition to the Downward Adjustment of Capital Gains Tax for Major Shareholders,' which was posted on the National Assembly's website on the 27th of last month, surged on that day, approaching 50,000.
As the stock market plummeted in just one day, Kim, the floor leader, indicated that he would reconsider the tightening of the major shareholders' capital gains tax criteria, taking a step back. The Democratic Party's KOSPI 5000 Special Committee also issued a statement, saying, "Many investors are expressing concerns regarding the government's tax reform plan, and the special committee is also listening to various opinions."
However, the presidential office stated that there is no connection between the tax reform and the stock market's decline. Spokesperson Kang Yoo-jeong claimed, "It is difficult to see that the fluctuations in the KOSPI occurred simply after the announcement of the tax reform."