South Korea scrapped a plan to tighten capital gains taxes on large shareholders, leaving the threshold at the current level of 5 billion won ($3.6 million) after investor pushback and concerns it would weigh on markets.
The decision marks a reversal from the Lee Jae Myung administration’s sweeping tax-reform blueprint unveiled in late July, which had proposed slashing the threshold to 1 billion won as part of a broader tax overhaul.
The latest decision reflected both “public desire” for the revitalization of the capital market and the ruling Democratic Party’s stance, Finance Minister Koo Yun-cheol said at a policy consultation meeting between the government and the DP on Monday.
“Since announcing the reform plan in July, we have weighed how to balance between tax normalization and market revitalization,” added Koo, who also serves as deputy prime minister.
The initial tax plan, which also called for raising the top corporate rate to 25% from 24%, drew sharp criticism from investors, who said the tougher capital gains levy on large shareholders clashed with President Lee’s pledge to lift the Kospi to 5,000.
The decision was widely expected after Lee hinted at keeping the level unchanged at a press conference marking his 100th day in office last week.
“If the threshold becomes an obstacle to market revitalization, there is no need to stick to it,” Lee told reporters at that time.
MUTED MARKET REACTION
On Monday morning, the Kospi edged up 0.3%, with gains muted after the government’s capital gains tax decision.
The country’s benchmark stock index has been on a tear, hitting a record 3,314.53 last Wednesday and topping 3,400 in the following consecutive sessions on hopes for the government’s more market-friendly reforms.
The Finance Ministry also said it will push to bolster capital markets with various measures, including a 150 trillion won National Growth Fund and a Korean version of Business Development Companies – modeled on the US system that channels capital into unlisted, high-risk firms to spur innovation.
By Hyung-Chang Choi and Hae-Ryon Choi
calling@hankyung.com
Sookyung Seo edited this article.
