Financial Services Commission (FSC) Chairman Choi Jong-ku hinted at abolishing the securities transaction tax on the South Korean equity market. As investors have to pay the tax even when they suffer a loss from equity investment, there has been criticism that it goes against the principle of taxation. Critics also noted that the tax could cause the problem of double taxation as a transfer income tax will be imposed on a wider scope of stock investors in the future. The amount of securities transaction taxes reported to authorities came to 4.7 trillion won (US$4.18 billion) last year, up 9 percent from a year earlier.
“It is high time we started thinking about abolishing the tax,” Choi said during a parliamentary session on Nov. 6. He was answering a question from Rep. Jeon Hae-cheol of the ruling Democratic Party. Choi added, “Investors have to pay the securities transaction tax whether they make a profit or suffer a loss from stock investment. It will also involve the issue of double taxation as a broader range of taxpayers will be forced to pay the stock transfer income tax in the future.”
The standard of “large shareholders” subject to the capital gains tax will be lowered to 300 million won (US$266,785) of shareholdings per company starting from April 2021. Therefore, there is growing controversy over double taxation due to the planned expansion of the target subject to capital gains tax collection. Choi said, “With the expansion of the range of major shareholders, those subject to the capital gains tax will be greatly increased as well.”
Even individual investors are posting petitions on Cheong Wa Dae's website to eliminate the securities transaction tax to vitalize the stock market, as the markets here have remained bearish for a long time. Choi said, “The tax authorities are reluctant to remove the securities transaction tax because they are worried about a drop in tax revenue. However, it can be an alternative to revitalize the stock market. We should discuss the matter with tax authorities.” The securities transaction tax was first introduced in 1963 but was abolished once in 1971. It was revived in 1978 and have been in effect since then. Under the current law, tax authorities impose 0.15 percent per transaction on the benchmark KOSPI market, 0.3 percent when including a special tax for rural development, and 0.3 percent on the secondary KOSDAQ market.