The government is said on the 11th to be reviewing a plan in its recent tax reform package to scrap restrictions set for the "productive finance ISA (individual savings account)," such as "no carryover of contribution limits" and "10-year maturity." For the carryover and maturity limits newly added to the general ISA, officials are already considering restoring the previous rules amid public criticism. The two products are linked, so fixing one requires fixing the other.
The productive finance ISA is an account the government decided to newly introduce to provide greater tax benefits than the general ISA for individuals who make long-term investments in domestic stocks, funds, and the Public Growth Fund. It is a product designed based on the general ISA. However, investments in overseas index ETFs (exchange-traded funds) listed on the domestic market are not allowed.
Problems arose as the government placed restrictions on both the general ISA and the productive finance ISA in the recent tax reform plan. Originally, the general ISA could have its maturity extended indefinitely after the mandatory subscription period (three years). But the tax reform plan capped the general ISA's maturity at a maximum of five years. At the same time, the productive finance ISA was given a maximum maturity of 10 years.
A restriction was also created for both the general ISA and the productive finance ISA that bars carrying forward annual contribution limits to the following year. Originally, the general ISA had an annual contribution limit of 20 million won, and it was possible to contribute a total of 35 million won by depositing 5 million won this year, then adding 15 million won (20 million minus 5 million) to the newly granted 20 million won limit the following year. The tax reform plan says this will no longer be allowed going forward. The same applies to the productive finance ISA.
Individual investors began to push back against the tax reform plan that restricts maturity extensions and the carryover of contribution limits, which had been regarded as benefits of the ISA. In the end, President Lee Jae-myung also ordered a full reexamination, saying the administration "did not thoroughly review the point that existing benefits would disappear."
Accordingly, the government and the National Assembly are strongly considering keeping much of the ISA's maturity extension and contribution-limit carryover "as is." A government official said, "If the general ISA is adjusted, the parts of the productive finance ISA that limit maturity to 10 years and prohibit carryovers also need to be adjusted together." Otherwise, the structure could result in reverse discrimination against the productive finance ISA.
Meanwhile, the productive finance ISA offers greater tax benefits than the general ISA. The productive finance ISA makes revenue from investments such as domestic stocks "fully tax-exempt without limits." By contrast, the general ISA exempts 2 million won of revenue, 4 million won for low-income and farmer/fisher types, and taxes the excess separately at 9%. Also, the total contribution limit for the productive finance ISA is 200 million won, larger than the general ISA's 100 million won.