Will ‘Value-up’ drive repeat Park Geun-hye’s economic policies?

A revision of tax policies scheduled for the latter half of the year is expected to come into greater focus, prompted largely by the disappointing announcement of the “Corporate Value-up Program,” market watchers said Tuesday.

Propelling the collective sentiment is Monday’s set of non-binding, toothless measures lacking specifics. Many say the financial policy drive of the Yoon Suk Yeol administration essentially failed to detail how to attract and lock in a larger number of foreign and institutional investors to reinvigorate the chronically stagnant local bourse.

Observers expect tax revisions in July will entail once-hyped policies of higher shareholder returns and corresponding lower corporate tax as well as lower taxes on gains from stock trading. The equity market-bolstering measures were put in place in 2014 by then Deputy Prime Minister and Finance Minister Choi Kyung-hwan under the Park Geun-hye administration. However, the financially right-leaning policy was scrapped after three years due to a criticism of a short-term spike in gains for foreign and institutional investors and a handful of wealthy local investors.

According to market sources, the Ministry of Economy and Finance will announce tax revision directives in July.

Chief among the revisions will likely be a lower corporate tax for businesses that bolster shareholder returns in the form of higher dividend payout ratios and stock buybacks for cancellation.

Also possible to be lowered is a dividend income tax for retail investors of listed firms that pay higher dividends. The tax rate could be cut to about 9 percent, down from the current 15.4 percent.

The revision is likely to make them eligible for separate filings of capital gains tax, vastly reducing the tax rate to a flat 25 percent. Currently, the rate goes as high as 49.5 percent combined with other earned incomes, in cases of capital gains, financial, business or rent incomes exceeding 20 million won ($15,000) per year.

Choi imposed taxes on businesses for failing to orient 80 percent of their annual profit into investment or paying dividends, a short-lived controversial policy later subsumed into a broader mandate to foster investment. Whether July’s measures will include similar policies remains to be seen.

“We are closely monitoring the policy developments relating to the dividend income tax cut, tied closely to the thorny push to scrap the capital gains tax on stock trading income,” an industry official said.