As the KOSPI index sets record highs day after day, the ruling and opposition parties moved to court the 14 million retail investors, the so‑called "ant investors," ahead of the Chuseok holiday. The Democratic Party of Korea is pushing to amend the Commercial Act with a focus on mandating the cancellation of treasury shares, while the People Power Party proposed a sharp cut to tax on dividends in a bid to win public support.
On the afternoon of the 30th, Democratic Party leadership including Representative Jeong Cheong-rae and Policy Committee Chair Han Jeong-ae visited the Korea Exchange in Yeouido, Seoul, and held a roundtable with exchange officials and market experts. Since the launch of the Lee Jae-myung administration, the ruling party leadership followed President Lee and Prime Minister Kim Min-seok in visiting the Korea Exchange, a move seen as the party and government putting weight behind policies to revitalize the capital market.
Jeong said, "The KOSPI 5000 era is President Lee's signature pledge. The Democratic Party will firmly back efforts to fully open the 'KOSPI 5000 era' during the term," adding, "We will concentrate all party capabilities." After the roundtable, Jeong said, "Because the diplomatic environment, including inter-Korean relations, and peace on the Korean Peninsula directly affect stock indexes, we will improve policies in those areas as well."
At the roundtable, the Democratic Party reaffirmed its intent to push legislation to strengthen the rights of small shareholders and resolve the "Korea discount." The centerpiece is mandating the cancellation of treasury shares. The party aims to address criticism that the current system, which does not require cancellation even when a company buys back its own shares, is abused as a tool to defend management control. The Democratic Party believes canceling treasury shares reduces the number of outstanding shares, increases earnings per share, and can boost the interests of all shareholders.
The Democratic Party is reviewing a plan to require, in principle, the cancellation of newly acquired treasury shares, while allowing exceptions in unavoidable cases such as employee compensation. Spokesperson Moon Dae-rim said after the roundtable, "We discussed excessive holdings of treasury shares. There was an opinion that, aside from what is distributed to employees (executives and staff), the padded portion should be canceled."
The People Power Party targeted investors by putting forward a tax plan. Visiting the Korea Financial Investment Association in Yeouido the previous day, party leaders said the current tax rate on dividends is excessive and stressed the need for a major cut.
Under the current system, a 15.4% tax rate (including local government tax) applies to annual dividend income of up to 20 million won, and a progressive tax of up to 49.5% is imposed on amounts above that. The People Power Party proposed cutting the rates to 9% and 25%, respectively. The move reflects growing investor discontent after the government in Jul. set the top separate taxation rate on dividend income at 35% when it unveiled its tax revision bill.
The Democratic Party also noted the need to improve the system on the issue of dividends. Spokesperson Moon Dae-rim said, "There was a point that, compared with neighboring countries, Korea has a low payout ratio," adding, "There was also talk that we should discuss creating a framework to increase dividends." However, Moon held back on whether to further adjust the dividend income tax rate.
The Democratic Party aims to introduce and pass within the year a third amendment to the Commercial Act centered on mandating the cancellation of treasury shares, along with an amendment to the Capital Markets Act to enhance the rights and interests of small shareholders. The People Power Party also plans to prepare a tax revision bill during the regular session and deliver it to the government. With First Vice Minister of Economy and Finance Lee Hyeong-il having signaled flexibility on adjusting the scope and rates for separate taxation of dividend income, there is growing speculation that dividend income tax rules could be revised during National Assembly deliberations.