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Will S. Korean Gov’t Abolish Securities Transaction Tax?
Ruling Party Set to Announce Reform Package
Will S. Korean Gov’t Abolish Securities Transaction Tax?
  • By Jung Suk-yee
  • January 16, 2019, 09:40
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Kwon Yong-won (first from left), chairman of the Korea Financial Investment Association (KOFIA), speaks during a conference with the ruling Democratic Party held at the KOFIA building in Yeouido on Jan. 15.

The ruling Democratic Party said on Jan. 15 that it would soon announce a comprehensive package of plans to revitalize the Korean capital market after discussion with the government.

In particular, it promised to decide as soon as possible whether to lower or abolish the securities transaction tax . The investment banking (IB) industry has long demanded the abolition of the tax.

“I heard that the political circle has never discussed issues regarding the taxation system in the capital market. I feel that it is time to discuss them in public,” said Democratic Party leader Lee Hae-chan during a conference with heads of securities and asset management companies held at the Korea Financial Investment Association (KOFIA) building in Yeouido.

Lee also expressed his opinion on reforming the securities transaction tax which has been recently brought up by the IB industry. He said, “I think it is problematic that investors need to pay the tax even when they suffer a loss from equity investment.”

Discussion on the tax issue started from the second half of last year after a bill was submitted to the National Assembly to lower or abolish the tax. Stock investors have long complained about the current legal system as they have to pay the tax even when they suffer a loss from investment. 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 criteria for “large shareholders” subject to the capital gains tax was lowered to 1.5 billion won (US$1.33 million) of shareholdings per company in April last year and will be lowered to 1 billion won (US$889,680) next year and 300 million won (US$266,904) in 2021.

With a positive response from the ruling party, expectations for tax reform in the capital market are growing in the IB industry. Chung Young-chae, president of NH Investment and Securities Co., said, “Many opinions were brought up in the conference that the securities transaction tax needs to be adjusted to avoid double taxation with the transfer income tax. The Democratic Party said that it would consider the problem as well.”

A CEO from another securities firm, who attended the conference, also said, “Discussion focused on the securities transaction tax. It was encouraging as Lee shared the view that it is a problem if investors have to pay the tax even when they make a loss from investment.”