[Weekly Review] Government Sticks to '3 Billion KRW Major Shareholder'... Aftermath of Wolseong Nuclear Power Plant Audit

[Image source=Yonhap News]

[Asia Economy Reporter Kim Bo-kyung] The government has decided to maintain the plan to lower the stockholding threshold for determining 'major shareholders' subject to capital gains tax on stock transfers from 1 billion KRW to 300 million KRW. It also announced plans to prepare additional measures for the jeonse (long-term lease) market. This week, the Board of Audit and Inspection released the results of an audit regarding suspicions surrounding the early shutdown decision of Wolseong Unit 1, causing some aftershocks.

◆Major Shareholder Threshold from 1 Billion to 300 Million KRW... Considering Individual Conversion= Deputy Prime Minister and Minister of Strategy and Finance Hong Nam-ki confirmed that the plan to strengthen the major shareholder threshold for capital gains tax on stock transfers from 1 billion KRW to 300 million KRW will proceed as scheduled, while maintaining the existing amendment to change family aggregation to individual aggregation. On the 22nd, during a National Assembly audit, in response to a question from Yang Hyang-ja of the Democratic Party, he said, "The plan to strengthen the major shareholder threshold from 1 billion KRW to 300 million KRW was already revised in the enforcement decree two and a half years ago, so it must proceed as is. However, we are preparing to switch family aggregation to individual aggregation." This means the previously proposed partial amendment to strengthen the capital gains tax criteria on stock transfers remains unchanged. The current Income Tax Act enforcement decree includes a provision to lower the stockholding threshold for determining 'major shareholders' subject to capital gains tax from 1 billion KRW to 300 million KRW starting next year. This was a pre-announced revision made in 2018. As a result, major shareholders as of the end of this year will have to pay capital gains tax of 22-33% (including local tax) on profits from selling the relevant stocks after April next year. While the regulation to strengthen the threshold from 1 billion KRW to 300 million KRW will proceed as planned, switching the family aggregation rule to individual aggregation will effectively ease the capital gains tax threshold to around 600 to 700 million KRW.

◆Hong: "Measures for Jeonse Market Stability Under Review with Relevant Ministries"= The government is preparing additional measures to stabilize the real estate market, particularly the jeonse market. On the 23rd, during a comprehensive audit by the National Assembly's Strategy and Finance Committee, Deputy Prime Minister Hong stated, "We will prepare maximum measures within the scope that do not conflict with current policies to stabilize the jeonse market." He added, "Various measures can be taken, but they cannot be easily adopted if they conflict with efforts to stabilize the real estate market. Nevertheless, whether small or large, the government is reviewing all possible measures in close consultation with relevant ministries." In response to related questions from committee members, he said that the introduction of a standard rent system and expanding the rent ceiling system to new contracts have not been considered.

[Image source=Yonhap News]

◆Wolseong Unit 1 Audit Results Announced... Economic Feasibility Evaluation Inappropriate= On the 20th, the Board of Audit and Inspection announced the results of an audit titled "Review of the Validity of the Early Shutdown Decision of Wolseong Unit 1," stating that the economic feasibility of the Wolseong nuclear power plant was evaluated too low. It revealed that employees of Korea Hydro & Nuclear Power knew that the sales price included in the economic feasibility evaluation report was set lower than actual but did not correct it and used it in the evaluation. It also stated that employees from the Ministry of Trade, Industry and Energy were involved in the decision-making process. The audit did not judge the validity of the early shutdown decision as it was outside the audit scope. Minister of Trade, Industry and Energy Sung Yun-mo said during the National Assembly audit on the 22nd that, "Although there were some technical review shortcomings in selecting variables for the economic feasibility evaluation, the Board of Audit and Inspection did not deny the economic feasibility evaluation itself." He added that the evaluation process was not manipulated and that there would be no reconsideration of the early shutdown of Wolseong Unit 1 accordingly.

◆Exports Down 5.8% from October 1-20... Daily Average Exports Up 5.9%= Exports from October 1 to 20 this month amounted to 25.2 billion USD, down 5.8% compared to the same period last year. However, due to strong semiconductor exports and other factors, the daily average export performance increased by 5.9%. The government positively evaluated this, saying, "The export recovery trend continues." Attention is on whether exports will record positive growth for two consecutive months following September. According to the Korea Customs Service announcement on the 21st, exports from October 1 to 20 totaled 25.2 billion USD, a 5.8% decrease from the same period last year. The number of working days was 12, 1.5 days fewer than last year, and considering this, the daily average export amount rose 5.9% year-on-year to 2.1 billion USD. By export item, semiconductors (12.1%), precision instruments (1.9%), and computer peripherals (10.5%) increased, while passenger cars (-7.6%), wireless communication devices (-1.7%), and petroleum products (-42.1%) decreased. An official from the Ministry of Trade, Industry and Energy explained, "Although semiconductors are representative, excluding items like petroleum products that halved due to low oil prices, overall exports contributed to the recovery." He added, "Exports turned positive for the first time last month since the COVID-19 outbreak, and the good trend seems to be continuing." September exports rose 7.6% year-on-year, marking a positive turnaround for the first time in seven months since the COVID-19 pandemic. Whether this export recovery trend continues this month is a key point.