The government has decided to lower the large shareholder standard for capital gains tax on listed shares from 5 billion won to 1 billion won, causing a sharp drop in the stock market, with some criticizing it as a "tax system that favors only real estate." With concerns raised that this contradicts the government's stance of promoting a "KOSPI 5000 era" through revitalizing the stock market, the Ministry of Economy and Finance is struggling with follow-up responses.
According to relevant authorities on the 6th, the Ministry of Economy and Finance plans to coordinate opinions regarding the tax reform plan with the Democratic Party's special committee on tax normalization soon. The Ministry announced on July 31 that it would reintroduce the large shareholder standard for imposing capital gains tax on stock investors holding more than 1 billion won in stocks per item. This marks a return to the previous system approximately two years after the Yoon Suk-yeol administration relaxed the standard to 5 billion won at the end of 2023.
As the tax reform plan was announced, concerns poured into the stock market. Those holding stocks worth over 1 billion won are expected to sell a large number of shares at the end of the year to avoid capital gains tax, which is believed to ultimately lead to a drop in stock prices.
Investors are particularly pointing out the government's push for tax increases in the stock market, even as it maintains the tax system for real estate, criticizing it as "reverse discrimination." President Lee Jae-myung stated in June that he believes the stock market should be transformed into an alternative investment vehicle comparable to real estate, but there are concerns that the actual tax system still leans closer to "favoring real estate."
Once classified as a large shareholder, stocks are taxed at a maximum rate of 25% on capital gains, regardless of the holding period. In contrast, real estate owners who possess only one house for more than 10 years can receive a deduction of up to 80% on capital gains, and there are also tax exemptions for homeowners up to 1.2 billion won. Reactions in the community suggest that "from a policy perspective, it ultimately concludes that real estate is the answer."
A week has passed since the tax reform plan was announced, but as the controversy has not subsided, the Ministry of Economy and Finance has also fallen into 고민. Initially, it was reported that there was a judgment within and outside the Ministry that "taxing high-value investors is consistent with tax equity." Additionally, it was noted that year-end sell-offs by high-value holders have varied each year and did not necessarily lead to market shocks, which is part of the reason behind the preparation of this tax reform plan.
Adjusting the tax standards is an amendment to the enforcement decree, so once a decision is made, it is not difficult to adjust the level. Currently, opinions are being gathered mainly by the special committee on tax normalization and the policy committee within the ruling party. Once discussions within the ruling party become more active, it is highly likely that consultations between the party and the government will take place.
There is an atmosphere in the Democratic Party that it is difficult to accept the government's proposed "1 billion won standard" as is. Kim Hyun-jung, the floor spokesperson, stated, "Although it is a matter of government enforcement decree, a prompt conclusion is needed to alleviate market uncertainty," and added, "We will propose a revised plan to the government." Within the party, discussions are ongoing regarding the possibility of compromise options such as returning to the previous 5 billion won standard or settling on 2 billion won or 3 billion won.
For now, the Ministry of Economy and Finance has stated that it will observe the discussions in the political arena since it has already announced the tax reform plan. Deputy Prime Minister and Minister Ku Yun-cheol remarked during a full meeting of the Strategy and Finance Committee at the National Assembly that "over 14 million citizens are investing in stocks, and the government is implementing various policies to enhance KOSPI value," adding that "we will listen to various opinions regarding the large shareholder capital gains tax standard and make a judgment."
The presidential office also showed a cautious attitude, stating, "We are closely watching the stock market and investor reactions." There is an interpretation that the stance has changed within a day from saying, "It is difficult to change policies based solely on short-term stock price fluctuations."
Experts point out that greater caution should have been exercised in changing the large shareholder standard. Professor Woo Seok-jin from Myongji University stated, "If the policy aims to revitalize the stock market, this adjustment to the taxation standard should have been treated as a long-term task and gone through a public discourse process," asserting that "the current structure, which judges whether to tax based on the holding amount per single item, is not rational, and it would be appropriate to transition to a standard based on total holdings or move towards capital gains-based taxation."
Emeritus Professor Kim Jeong-sik from Yonsei University expressed concern that "policies must maintain consistency to earn trust, even considering the backlash of stakeholders; easily changing direction based on public opinion makes policy establishment itself more difficult." He added, "If a structure that wavers in response to interest groups in a sensitive area like taxes becomes entrenched, it could ultimately lead to results that only reflect the demands of influential groups."