[Major Shareholder 300 Million Controversy] Blue House National Petition... Stock Market Hot Issue 'Major Shareholder 300 Million'

[Image source=Yonhap News]

[Asia Economy Reporter Park Ji-hwan] "You can't find a house with a jeonse price of 300 million won even if you look with your eyes wide open in Seoul, yet the major shareholder standard is set at 300 million won. The requirement should be changed to an amount that most people can relate to, fitting the connotation of the term 'major shareholder.'

The so-called 'Donghak Ants' are fiercely protesting the news of the change in the major shareholder criteria for stock transfer tax. They are even threatening to leave the domestic stock market by the end of the year if their demands are not met, putting pressure on the government.

According to the government and the financial investment industry on the 29th, from next year, the stock holding standard for being classified as a major shareholder will be drastically lowered from the current 1 billion won to 300 million won. According to the Enforcement Decree of the Income Tax Act, currently, if one holds more than 1% (2% for KOSPI) of shares in a specific stock or holds stocks worth over 1 billion won, they are classified as a major shareholder, but this standard will be significantly lowered from next year.

As of the end of this year, if a major shareholder sells the relevant stock after April next year and makes a profit, a capital gains tax of 22-33% (including local tax) will be imposed. In addition, when calculating the stock holding amount, the stocks held by the person concerned as well as their spouse, parents, grandparents, great-grandparents, children, grandchildren, great-grandchildren, and other direct lineal relatives in special relationships, including common-law partners, are all combined. It means that children need to check how many 'Samsung Electronics' stocks they hold when calling their parents to say hello.

As the situation escalated, on the 5th, a post titled "Strongly Requesting the Dismissal of Hong Nam-ki, Minister of Strategy and Finance" was even posted on the Blue House's public petition board. The petition has garnered over 210,000 signatures. The author wrote, "I strongly request the dismissal of the Minister of Strategy and Finance who insists on opposing the abolition or postponement of the 300 million won major shareholder requirement." He criticized, "Despite the difficult economic situation, the KOSPI has maintained an upward trend due to the participation of Donghak Ants in stocks. Despite the public opinion and the president's request not to dampen the enthusiasm of ant investors for stock participation regarding the 300 million won major shareholder issue established in the previous administration, the Minister of Strategy and Finance stubbornly maintains the absurd 300 million won major shareholder regulation."

The government is pushing ahead with the change in the major shareholder criteria as is. However, it is preparing a revision to change the family aggregation of major shareholders, which has been criticized as a 'modern-day hereditary punishment system,' to an individual basis. The government expects that if the family aggregation rule is converted to an individual basis, the capital gains tax imposition threshold for stock holdings will be relaxed to around 600 to 700 million won.

The reason the government insists on the 300 million won major shareholder threshold is 'tax fairness' and 'policy credibility.' Minister Hong Nam-ki previously said at the National Assembly's Planning and Finance Committee's audit of the Ministry of Strategy and Finance, "(The change in the major shareholder standard) was already announced from the perspective of tax fairness on financial assets, and since the Enforcement Decree has been revised, reversing the announced policy would raise issues of policy credibility and tax fairness." The government decided in 2017 to gradually strengthen the major shareholder criteria through legal amendments. At that time, the government planned to lower the major shareholder standard for listed companies from the existing 2.5 billion won to 1.5 billion won in 2018, 1 billion won in 2020, and 300 million won in 2021, lowering it every year.

However, investors criticize that maintaining the major shareholder criteria at 300 million won despite the economy growing compared to the past will pour cold water on the market just as it is preparing to break out of a decade-long box range and leap toward the 3,000-point mark. In particular, there are voices that the investment sentiment of Donghak Ants, who supported the stock market this year based on abundant liquidity, may weaken. The securities industry analyzes that as the year-end approaches, the volume held by individual investors will flood the market.

According to the Korea Exchange, individual investors have shown an average net sale of 2.4523 trillion won every December in the KOSPI and KOSDAQ markets from 2012 to last year. Especially in years when the major shareholder criteria were strengthened, the net sale volume was even larger. In 2017, when the major shareholder standard was strengthened from 2.5 billion won to 1.5 billion won, net sales reached 5.1317 trillion won. Last year, when the criteria were strengthened from 1.5 billion won to 1 billion won, net sales amounted to 4.823 trillion won.

According to the Korea Securities Depository, as of the end of last year, there were 80,861 shareholders holding stocks of '300 million won or more but less than 1 billion won' in specific stocks. The amount of stocks they hold is 41.5833 trillion won, about 10% of the total stock holdings of individual investors, which is 417.8893 trillion won. Considering the strong stock investment enthusiasm of Donghak Ants this year, the number of shareholders subject to the changed major shareholder criteria is expected to have increased significantly compared to last year. Lowering the major shareholder standard to 300 million won will increase the number of target investors, raising concerns that the year-end net sale volume will surge more than before.

A financial investment industry official said, "If volumes come to the market to avoid taxes around the end of the year, a stock price shock seems inevitable," adding, "The biggest issue is whether individual investors will continue to seek the domestic stock market afterward."