Lee Orders Review of ISA Overhaul, Anti-Stock-Price Suppression Bill

Tax overhaul draws sharp backlash from retail investors

“It wasn’t properly prepared … it failed to preserve the original intent”

President Lee Jae-myung on August 7 ordered a full review of the recently announced tax overhaul, including proposed changes to individual savings accounts, or ISAs, and a bill aimed at preventing stock-price suppression.

The directive came after mounting criticism from investors and younger people. It suggests Lee wants the measures redesigned after gathering additional feedback.

According to political circles, Lee was briefed at a morning meeting with aides on investor opposition to the ISA overhaul and the stock-price suppression bill.

At the meeting, Lee rebuked the ISA proposal, asking why it had been pushed ahead without proper preparation, and ordered a full review.

He also questioned why the stock-price suppression bill had been designed in a way that failed to preserve the original purpose of the overhaul, and instructed officials to revisit that measure as well.

Under the tax overhaul, the government proposed creating a new “productive finance ISA” limited to domestic investments. It also decided to abolish the carryover of unused contribution limits under the existing ISA program and shorten contract periods, triggering a strong backlash from younger investors and so-called “Seohak ants,” a Korean term for retail investors who buy overseas stocks.

ISAs are widely used by retail investors as a means of tax savings and wealth accumulation because they offer tax exemptions on interest and dividend income. Critics said the overhaul would narrow investor choice and benefits, and could effectively pressure individuals into investing in domestic stocks.

The proposed stock-price suppression bill also stirred controversy. It would raise the assessed value of shares by at least 30% for tax purposes when authorities detect so-called stock-price suppression, in which shareholders deliberately keep prices low to reduce inheritance or gift taxes.

The government proposal defines suspected stock-price suppression companies as those whose price-to-book ratio, or PBR, ranked in the bottom 25% of their Kospi industry group or the bottom 10% of Kosdaq in 12 of the past 13 half-year periods. Critics said that framework could leave room for companies to game the system by managing their PBR ranking only during certain periods.

The measure also drew open criticism from within the ruling party. Democratic Party lawmaker Lee So-young wrote in a Facebook post after the tax overhaul was announced that the government’s version moved in a direction that undermined the very idea of the stock-price suppression bill. Fellow Democratic Party lawmaker Lee Hoon-ki said it would not be enough to solve the underlying problem.

Ko Jeong-sam, Hankyung.com reporter jsk@hankyung.com