October 30, 2024

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South Korea’s Deputy Prime Minister and Finance Minister Hong Nam-ki has unveiled plans to cut the securities transaction taxes by up to 0.2 percentage point starting June to boost the sluggish stock market.

All eyes are now on how the administration plans to offset the projected 1.4 trillion won ($1.24 billion) tax losses following the first major stock transaction tax cut in over two decades. 

From June 3, trading securities on Korea’s main Kospi index and second-tier bourse Kosdaq will be lowered by 0.05 to 0.25 percent, Hong said on April 12 during his visit to Washington DC for meetings of G-20 finance ministers and central bank governors last week.

The rate for trading on the third-tier bourse Konex will be cut by 0.2 percentage point to 0.1 percent. Both the Kosdaq and Konex are dedicated to supporting fundraising for small and medium-sized companies, but Konex-listed firms have less rigorous listing requirements.

As for over-the-counter stock transactions, the proposed rate cut to 0.45 percent per transaction from the current 0.5 percent will take effect following a law revision next year.

The government is facing with growing calls for such tax reliefs amid dampened investor sentiment. 

After the ruling Democratic Party proposed scrapping the securities transaction tax by 2024 to stimulate the market through a series of rate cuts, Financial Services Commission Chairman Choi Jong-ku promptly unveiled a relief package including stock transaction tax rate cuts.

In March, the Finance Ministry hinted it will come up with ways to impose capital gains tax on a wider range of investors by the first half of next year to help offset tax revenue losses from the securities transaction tax cut. Currently, capital gains tax from returns on stock investment equals the lower of the two -- 22 percent of net capital gains or 11 percent of gross sales proceeds.  

However, the capital gains tax regime in Korea will be difficult to comply with the potential revision to increase tax revenue through tougher capital gains tax rules, without the centralized infrastructure system to track and calculate gains of foreign investors, said Patrick Pang, managing director and head of fixed income and compliance at Asia Securities Industry & Financial Markets Association.

“We do want to emphasize the importance of not letting a securities transaction tax reduction impact the treatment of capital gains tax as its levy is operationally very challenging,“ he said.

By Son Ji-hyoung (consnow@heraldcorp.com)