Ministry of Economy and Finance: "We will carefully review the application of the basic fund deduction and include it in the final plan"

Public Hearing on the Direction of Financial Tax System Modernization

[Asia Economy Reporter Joo Sang-don] The government has officially announced revisions and supplements regarding the non-application of the 'basic deduction for collective investment schemes (funds),' which has sparked controversy over reverse discrimination.

On the afternoon of the 7th, at the 'Public Hearing on the Direction of Financial Tax System Modernization' held at the Bankers' Hall in Myeong-dong, Seoul, Ko Kwang-hyo, Director of Income and Corporate Tax Policy at the Ministry of Strategy and Finance, who attended as a discussant, stated, "Basically, it is appropriate to differentiate between direct and indirect investments such as stocks and funds, which have different investment characteristics," but added, "However, since there are various criticisms and demands regarding the (fund basic deduction), we will carefully review them further and explain the details when announcing the final plan."

Along with this, the Ministry of Strategy and Finance plans to include improvements to the Individual Savings Account (ISA) system in the 2020 tax law amendment to alleviate the tax burden on fund investors. Kim Moon-geon, Head of the Financial Taxation Division at the Ministry, said, "The eligibility for ISA subscription has been expanded from those with earned or business income to all residents," and added, "We also plan to significantly enhance operational flexibility."

The Ministry is also considering extending the timing of withholding tax on financial investment income amounts. Director Ko explained, "To facilitate tax payment, we proposed a method where financial companies aggregate income amounts monthly and withhold tax accordingly, but we will review this further and reflect a better plan in the final proposal."

Regarding the abolition of securities transaction tax and tax support for long-term investment, he reaffirmed a negative stance. He emphasized, "If the securities transaction tax is abolished, taxation on foreigners cannot be imposed, and measures to address market distortions such as high-frequency trading will disappear," adding, "Financial assets already reflect inflation, and providing benefits for long-term holding is unnecessary."