‘Tax burden will be alleviated for investors’
The vice finance minister on Thursday defended the government’s plan to introduce a capital gains tax following a strong backlash from investors.
“Only the top 5 percent of all investors in stocks which totals about 300,000 will be subject to the capital gains tax and the remaining 95 percent of investors will see their tax burden alleviated due to the lowering of the stock transaction tax,” First Vice Minister of Economy and Finance Kim Yong-beom said in a briefing following a meeting on the economy with related ministries at the Seoul Government Complex.
His remarks come after the government’s plan announced last week is receiving a lukewarm response from investors, and raising speculations that heavier tax burdens would lead to a flight of funds to offshore investment options.
The government stated it is planning to subject investors earning over 20 million in gains from transactions of listed shares to a 20 percent tax.
If their earnings are over 300 million won, the taxation rate rises to 25 percent.
The plan allows retail investors to be exempted from the tax when gains from stocks fall below 20 million won.
The official said capital gains will come under taxation starting in 2023.
The finance ministry’s revisions to existing regulations also include levying a tax on gains from all investments in financial products.
“There were various opinions and criticism against the current system of taxation on financial gains over the principle of fairness,” Kim said. “A lot of gains were not subject to taxation, the system was complicated and in some cases investors had to pay more taxes than gains reaped from investments.”
At the same time, the official stressed that the stock transaction tax rate will be lowered by 0.02 percentage points in 2022 and by 0.08 percentage points in 2023, bringing down the current stock transaction tax to 0.15 percent from 0.25 percent.
The current 0.25 percent was reduced 0.05 percentage points from 0.3 percent in June last year, but there had been complaints that investors who saw losses from stock trading still had to pay tax.
Investors have opposed the government’s revision, stating they will become subject to “double taxation,” as some will be subject to both the capital gains tax and stock transaction tax. The debate is ongoing.
Lawmakers of both the ruling and opposition parties have pointed out that the imposition of both would pose an excessive burden on investors.
They state that if the government’s logic is that taxes need to be levied according to gains, the stock transaction tax must be abolished as this is imposed according to the amount traded, regardless of whether or not any gains are made.
The finance ministry, however, contends that abolishing the stock transaction tax will lead to a huge fallout in tax revenue coming from foreign investors, which accounted for about a third of market trading volume in 2019.
They paid about 1 trillion won in taxes last year.
The government has also said a transaction tax is needed to prevent excessive market volatility that would arise from greater volumes of high-frequency trading if the transaction tax were to be abolished.