South Korean securities industry observers noted on May 10 that discussions about reintroducing the Financial Investment Income Tax have gained momentum following President Lee Jae-myung's April comments at the National Economic Advisory Council. Lee stated in April that 'transaction tax and capital gains tax should be switched' and noted that 'currently even those who don't profit pay taxes, creating regressivity.' The debate centers on replacing the current 0.2% transaction tax with a capital gains tax system that would impose 22-27.5% rates on annual stock investment profits exceeding 50 million won, a proposal originally introduced in 2020 under the Moon Jae-in administration but repealed at the end of 2024 after investor opposition.
President Lee Raises Transaction Tax Regressivity Concerns in April
President Lee Jae-myung's April remarks at the National Economic Advisory Council reignited debate over stock taxation structure approximately one and a half years after the related Income Tax Act amendment was repealed. Civic group Participation Solidarity issued a statement on the 2nd urging authorities to 'not delay discussions on normalizing financial taxation and prepare a concrete roadmap.' A financial authority official explained that 'simplifying the tax system and significantly expanding tax benefits for Individual Savings Accounts (ISA) to increase long-term investment incentives could have positive effects on national asset accumulation.'
Securities Industry Cites Market Volatility Risks
According to the financial investment industry on May 10, a securities firm that is a major member of the Korea Financial Investment Association recently shared internal analysis on the possibility of introducing the financial investment income tax, market impact, and infrastructure construction at the C-level. Individual investors accounted for approximately 47% of trading volume in the domestic stock market through May 10. The United States and Japan, which have introduced stock taxation systems similar to the financial investment income tax, are known to average around 30%. Taiwan, Singapore, and Hong Kong all operate transaction tax systems. Jung Eui-jung, representative of the Korea Stockholders Alliance, stated that 'volatility will increase further if we switch to the financial investment income tax when foreign and institutional program short-term trading is already extreme.'
Foreign Investor Tax Treatment Creates Disparity Issues
Current domestic stocks impose a maximum 25% capital gains tax only on major shareholders holding more than 5 billion won per stock, meaning most individual investors effectively receive tax exemption on domestic stock capital gains. A 0.2% transaction tax applies uniformly to domestic and foreign investors. If the transaction tax is maintained and the financial investment income tax is introduced, individual investors' tax burden increases; if the transaction tax is abolished and the financial investment income tax is introduced, only domestic investors become subject to taxation. Foreign investors already pay income realized from financial investments in the form of 'income tax' in their home countries, making double taxation impossible. A senior financial authority official stated on condition of providing personal opinion that 'taxation of financial investment income has been established according to each country's capital market environment' and 'in the Korean stock market where the proportion of individual investors is high, backlash from those subject to taxation is burdensome.'
Infrastructure Implementation Presents Technical Challenges
Transaction tax revenue reached 5.4 trillion won through May, already far exceeding last year's total transaction tax revenue of 3.4 trillion won, according to the Ministry of Finance and Economy. Compared to predictable transaction tax, financial investment income tax revenue forecasting is difficult. An official from a small and medium-sized securities firm noted that 'if we need to build a taxation system that must consider loss carryforward rather than simply applying transaction tax rates, the cost burden will be significant.' Tax authorities and securities firms face infrastructure construction challenges in implementing the system.
FAQ
What did President Lee Jae-myung say about stock taxation in April?
President Lee stated at the National Economic Advisory Council in April that 'transaction tax and capital gains tax should be switched' and noted that 'currently even those who don't profit pay taxes, creating regressivity.'
How does South Korea's individual investor participation compare to other markets?
Individual investors accounted for approximately 47% of trading volume in South Korea's stock market through May 10, while the United States and Japan, which have similar capital gains tax systems, average around 30% individual investor participation.
