Asset Management Firms Left Disappointed by 'Tax Law Amendment'

Among Public Equity Funds, a Basic Deduction of 50 Million KRW Applies Only Domestically

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[Asia Economy Reporter Kum Bo-ryeong] The asset management industry has expressed disappointment over the '2020 Tax Law Amendment' announced by the government last month. This is because the basic deduction of 50 million KRW applies only to 'domestic' public stock-type funds.

According to the Ministry of Economy and Finance on the 13th, the basic deduction amount for capital gains tax on financial investment income, introduced from 2023, is 50 million KRW. This includes only domestic stocks and domestic stock-type public funds. The basic deduction amount for other financial investment income is set at 2.5 million KRW.

The asset management industry voiced regrets over this. They believe it is insufficient as a measure to revive public funds. An asset management company official said, "Currently, overseas stock-type funds are taxed, so direct overseas investment is relatively advantageous, leading to more of it," adding, "If overseas stock-type funds were included in the basic deduction, it would encourage interest in indirect investment and could actually be an opportunity to expand the public fund market, but it seems that part was overlooked."

The government’s position on limiting the basic deduction to 'domestic' public stock-type funds is aimed at revitalizing the domestic stock market and facilitating domestic companies' capital raising. They argue there is no need to provide large basic deductions for funds flowing overseas.

The issue is that recently, funds combining domestic and overseas stocks have emerged, making it difficult to clearly classify them as domestic stock-type or overseas stock-type. For example, Samsung Electronics, considered a global company, is sometimes included in overseas stock-type funds. Another asset management company official said, "If there is even a portion of domestic stocks, it would be much better to provide a basic deduction considering a certain ratio, even if it is not a 100% domestic stock-type public fund."

This also applies to mixed funds combining stocks and bonds. Stock-mixed funds or bond-mixed funds buy and sell stocks and bonds according to market conditions. They have the advantage of reducing market shocks through diversification.

The definition of 'domestic stock-type' will determine whether the basic deduction benefit applies. Since the enforcement decree has not yet been established, various possibilities remain.