[Weekly Review] Considering 'Individual Taxation' Amid Donghak Ants' Backlash... '3 Billion KRW Threshold' Maintained

Deputy Prime Minister for Economy Hong Nam-ki is attending the National Assembly's Planning and Finance Committee hearing on the Ministry of Economy and Finance on the 8th, responding to lawmakers' questions. Photo by Yoon Dong-joo doso7@

[Asia Economy Reporter Joo Sang-don] The government has announced its plan to review changing the capital gains tax on major shareholders to individual taxation. This comes after criticism of a "family collective punishment system" arose because the calculation of stock holdings included those of spouses and direct lineal relatives (including maternal grandparents and grandchildren). The government intends to keep the major shareholder threshold at 300 million KRW but consider switching to an individual aggregation method.

Under current law, a person holding 1 billion KRW or more in a single stock is defined as a major shareholder and is subject to capital gains tax of 22-33% (including local tax) on gains. According to the '2017 Tax Law Amendment,' the major shareholder criteria will be gradually expanded, strengthening the capital gains tax standards. Accordingly, from April 2021, shareholders holding 300 million KRW or more in a single stock must pay capital gains tax on profits.

However, when criticism arose during the National Assembly audit that "considering shareholders holding over 300 million KRW as major shareholders does not align with public sentiment," Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki clearly stated that there are no plans to change the policy, citing the consistency of government policy.

◆ Debt ratio 60% · Integrated fiscal balance -3%... Korean-style fiscal rules = The government has decided to introduce 'Korean-style fiscal rules' to maintain the sustainability of national finances. The rules will be based on a national debt ratio of 60% and an integrated fiscal balance of -3%, but exemptions will be allowed in cases of severe economic crises such as the COVID-19 pandemic.

Both ruling and opposition parties have criticized the government's stance. The ruling party argues that fiscal rules restrict active fiscal roles, while the opposition claims the rules are too lax.

During the audit, Hong Ik-pyo, a member of the Democratic Party of Korea, asked, "Why introduce fiscal rules when they have effectively become obsolete in the European Union (EU)?" Deputy Prime Minister Hong replied, "Although the national debt ratio reached 44% during the COVID-19 crisis, this is not a one-year event; it is expected to rise to the high 50% range in four years, so fiscal rules are necessary." Koo Kyung-ho of the People Power Party pointed out, "From 2039, the integrated fiscal balance will be in deficit due to the National Pension, so how loosely do you intend to manage the limit?" Deputy Prime Minister Hong responded, "The integrated fiscal balance has exceeded -4% (deficit ratio), and -3% is very strict."

◆ Consumer prices rise above 1% for the first time in 6 months = Last month, the consumer price index rose 1.0% compared to the previous year, marking a rise above 1% for the first time in six months. This is the first time since March, when the COVID-19 outbreak spread (1.0%).

The consumer price index for September was 106.20 (2015=100), up 1.0% from the same month last year. The consumer price inflation rate was in the 1% range from January to March this year, dropped to 0.1% in April and -0.3% in May, then resumed an upward trend from June. It was 0.0% in June, 0.3% in July, 0.7% in August, and expanded last month.

By expenditure purpose, the price increase rate for food and non-alcoholic beverages was 8.3% compared to the previous year, the highest since August 2011 (11.2%). This is interpreted as due to increased demand as more people cooked at home amid the COVID-19 pandemic.

Looking at major fluctuating items, ahead of the kimchi-making season, prices of cabbage and radish surged sharply, burdening the budgets of ordinary citizens. Cabbage prices rose 67.3% and radish prices 89.8% compared to the same month last year. Prices of apples (21.8%), tomatoes (54.7%), and green onions (40.1%) also increased significantly.

The 'fresh food index,' calculated based on 50 items such as fish, shellfish, vegetables, and fruits that have large price fluctuations depending on weather conditions, rose 21.5%, the highest increase since February 2011 (21.6%). Fresh vegetables, in particular, rose 34.9%.