South Korea may delay capital gains tax on stocks

(Yonhap)

South Korean financial authorities were on Thursday mulling a postponement of the law to levy a capital gains tax on equity investments that is expected to begin next year.

In a morning meeting, regulator Financial Services Commission met with market analysts from 10 local brokerages to discuss the effects of the new tax system on the market, according to industry sources. The move was widely welcomed by onlookers as a sign that authorities are actively considering postponing the tax review.

Analysts at the meeting expressed concern that the new tax overhaul would cause big investors to exit the market, which could lead to “chaos”, sources said. They reminded authorities that current market conditions are “different” from those in 2020, when the tax overhaul plan was first announced by the previous administration.

The ruling People’s Power Party and the main opposition Democratic Party have clashed over the issue. The PPP called for delaying adoption until 2025, while the DP proposed to carry out the plans on schedule.

In 2020, the previous Moon Jae-in administration announced that a new capital gains tax would be levied on equity investments from January 1, 2023. All investors who trade listed stocks with annual capital gains over 50 million won ($37,252) will be subject to a tax rate of 20%. Investors who hold more than 300 million won would be subject to a tax rate of 25%.

Instead, the stock transaction tax would be lowered and the revision would exempt retail investors with annual capital gains of less than 20 million won.

With opinions on the new capital gains tax code divided, experts say financial regulators and lawmakers should add details to the bill, comparing it with counterparts in other major economies.

The United States levies different capital tax rates depending on how long the investor has held the asset, according to a report by the Korea Institute of Public Finance. It also offers tax benefits to investors looking to sell shares that have been held for more than a year. Part or all of the long-term net capital gain may be taxed at 0% if the investor’s taxable income is less than or equal to $40,400 for singles or $80,800 for married couples filing jointly.

Korea currently levies a capital gains tax on major shareholders who hold shares worth more than 1 billion won in a single company. Their participation must exceed 1% of the total shares listed on the benchmark Kospi or 2% of the total shares listed on the secondary market of the Kosdaq if they are subject to capital gains tax.

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