"A Selling Bomb May Pour Out"... Why the Yeouido Securities Market Is Stirred Up [Kim Ik-hwan's Ministry Hands-Up]

Lowering the Capital Gains Tax Threshold to 1 Billion?

Concerns Over 'Selling Bombs' by Major Shareholders at Year-End

"Calling for KOSPI 5000 While Raising Taxes?" Backlash

Worries Mount Over Dividend Income Tax Reform as Well

"If so, small caps will be hit first."

The Yeouido securities industry is also in turmoil. The government is showing signs of strengthening taxation on the stock market. Especially, concerns are growing due to news that it is considering tightening the major shareholder capital gains tax threshold. One asset management manager said, "There will be a flood of stocks for sale near the end of the year aimed at avoiding capital gains tax," and added, "Small-cap stocks with low market capitalization could be hardest hit."

According to related ministries on the 21st, the Ministry of Strategy and Finance is considering a plan to significantly lower the capital gains tax threshold for major shareholders of listed stocks from the current 5 billion won per stock. At the same time, an increase in the securities transaction tax rate is also being weighed. The securities transaction tax has been cut step by step since 2021, premised on the introduction of a financial investment income tax. This year, a rate of 0% is applied to the KOSPI market, and 0.15% to the KOSDAQ market.

The Yoon Suk-yeol Administration drastically cut both the capital gains tax and the securities transaction tax. According to the National Assembly Budget Office, due to cuts in the securities transaction tax, tax revenue decreased by 4.1 trillion won from 2021 to 2023. The government estimates that, due to the abolition of the financial investment income tax, there will be an average annual tax revenue shortfall of 1.4505 trillion won going forward. It is being evaluated that the Lee Jae-myung Administration has introduced tax hikes to make up for the lack of revenue. However, if the capital gains tax threshold is reinforced, it could increase the likelihood of large-scale sales by major shareholders at year-end, thereby raising concerns about market volatility.

The government's push for the introduction of separate taxation on dividend income, part of its 'KOSPI 5000' pledge, is also facing setbacks. The Democratic Party of Korea is working on toughening the criteria for separate taxation in response to criticism over "tax cuts for the rich." The amendment to the Income Tax Act proposed by Democratic Party member Lee So-young in April includes a clause allowing separate taxation only for listed companies with a dividend payout ratio of at least 35%. The ruling party is also considering adding quantitative criteria such as dividend yield, dividend growth rate (year-over-year), and price-to-book ratio (PBR).

However, many point out that overly complicated criteria could reduce the effectiveness of the policy. Stock market experts say that the market has already partially reflected the provisions in Lee So-young's amendment. There are further concerns that, if a more complicated separate taxation system becomes reality, the stock market may experience additional corrections.

Reporter Ik-hwan Kim lovepen@hankyung.com