By Lee Yeon-woo
The likelihood of taxing income from financial investments has increased following the landslide victory of the opposition Democratic Party of Korea (DPK) in the April 10 general election, experts said on Friday.
Retail investors strongly opposed the move, with more than 50,000 individuals signing an online petition calling for the tax on financial investment income to be scrapped. As a result, the matter was referred to the National Assembly.
According to the Assembly’s online petition platform, an individual filed a request on April 9 to remove the tax on income from financial investments. The petition gained significant traction, gathering a total of 54,636 signatures as of 10 a.m. Friday.
If the number of signatures exceeds 50,000, the National Assembly is obliged to consider the agenda in the National Policy Committee.
The financial investment income tax imposes a 20 percent levy on total income derived from financial products, including stocks, bonds, funds and derivatives, exceeding 50 million won ($36,205), with a higher rate of 25 percent applied to profits over 300 million Won.
This tax was slated to be implemented last year after a bill was passed in 2020. However, with the inauguration of President Yoon Suk-yeol, a bipartisan agreement delayed its implementation until 2025. While the government seeks to abolish the tax, the DPK insists on continuing with its original execution plan.
Investors currently face securities transaction tax when they engage in stock market transactions, which is levied on every transaction whether it results in a profit or a loss. In addition, major shareholders who own more than 5 billion won per share are subject to capital gains tax.
The financial investment income tax was intended to replace the securities transaction tax, aligning itself with practices in other major economies such as the United States, Japan and Germany.
Retail investors argue that the tax on financial investment income is unfair because it targets them exclusively, while exempting foreign and institutional investors.
“Due to double taxation treaties, foreign investors and foreign-based funds are not required to pay taxes on domestic investment income. Therefore, the entire burden of this tax lies on the retail investors,” the petitioner said.
They are also concerned that implementing the tax could further depress the stock market. They expect a significant increase in the phenomenon of tax avoidance at the end of the year, where investors withdraw funds to avoid exceeding tax thresholds.
“Many investors will move to foreign markets, choosing to avoid the vulnerable domestic market,” the petitioner added.
Experts believe that the abolition of the tax is unlikely, as the current mandate of the National Assembly is coming to an end.
“Even if the next National Assembly tries to tackle the issue in its next mandate, strong opposition from the DPK could prevent the bill from being passed.” Unless there are special circumstances, implementation will continue next year,” said Joo Won, director of Hyundai’s research institute.
But they caution against excessive worry.
“While there are concerns about individual investors withdrawing liquidity to avoid tax payments, fears of continued capital flight may be overblown given positive developments such as increased benefits from individual savings accounts,” said Kim Young- Hwan, researcher at NH Investment & Securities.
