[Asia Economy Reporter Minji Lee] Kim Byung-wook, a member of the Democratic Party of Korea, has raised objections to the government's proposal to lower the threshold for major shareholders subject to capital gains tax on stock transfers from the current 1 billion KRW to 300 million KRW.
On the 29th, Kim Byung-wook, chairman of the Democratic Party's Special Committee on Capital Market Activation and secretary of the Political Affairs Committee, pointed out that "setting the major shareholder threshold at 300 million KRW is an unreasonable system."
He argued, "Considering the rationality of taxation and the inflow of funds currently concentrated in real estate into the securities market, the expansion of the major shareholder scope must be postponed."
Under the current Enforcement Decree of the Income Tax Act, a person holding more than 1% of shares in a specific stock or holding shares worth more than 1 billion KRW is classified as a major shareholder. If classified as a major shareholder, they must pay at least 20% tax on capital gains from stock transfers.
According to the government proposal, the threshold for capital gains tax, imposed in April next year based on the shareholder registry closing date at the end of this year, will be lowered from 1 billion KRW to 300 million KRW per stock. The 300 million KRW is calculated by summing the shares held by the individual and their immediate family members in each stock.
He criticized, "Since the taxable major shareholder under the tax law includes the holdings of the individual, spouse, and even lineal ascendants and descendants maintaining independent livelihoods, setting the major shareholder threshold at 300 million KRW is absolutely unacceptable."
He also predicted that lowering the taxable threshold could cause unnecessary volatility in the stock market. He said, "The current major shareholder taxation method determines taxable major shareholders based on the stock holdings at a specific point at the end of the year, which will induce concentrated selling by individual investors at year-end," and emphasized, "To attract circulating funds into the securities market and enjoy the effect of capital market activation, the expansion of the major shareholder criteria must be postponed."
Kim suggested that deferring the change until 2023, when advanced capital market tax reforms such as the reduction of securities transaction tax, a 50 million KRW exemption on stock capital gains tax, and the introduction of loss offset and loss carryforward deductions are implemented, could be an alternative. He explained, "If the advanced capital market tax reforms are implemented from 2023, the current major shareholder taxation issue will be naturally resolved without causing a significant shock to the stock market."
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