[Asia Economy Reporter Lee Jung-yoon] The securities industry has conveyed to financial authorities the opinion that a deferral of the financial investment income tax (Fintax) is necessary.
On the 17th, the Financial Services Commission and the Korea Financial Investment Association held an 'Industry Meeting on Capital Market Trends' to discuss the impact of Fintax on the stock market. The meeting was attended by officials from the FSC, KOFIA, Korea Exchange, and research and tax officials from seven securities firms.
The attendees agreed that it is not advisable to implement Fintax immediately from next year and that a two-year deferral of its introduction is necessary. They particularly argued that the full introduction of Fintax would negatively affect investor sentiment amid a sluggish stock market.
An official A stated, "Regardless of the actual tax burden, the mere possibility of a tax burden can have a negative impact on the market." Official B said, "Since after-tax returns will decrease due to Fintax, stock market trading will be significantly reduced. As overseas investment by domestic investors has become common, our stock market will be less attractive compared to overseas investments."
Additionally, concerns were raised that taxpayers' and investors' predictability regarding tax matters would significantly decline and that more preparation is needed for tax enforcement in the field. Official C said, "With only about a month left this year, deciding on the introduction and implementation of the tax undermines taxpayers' predictability and causes market confusion, which could greatly infringe on taxpayers' sovereignty."
There were also calls for improvements to the detailed aspects of the Fintax system during the deferral period. Official E argued, "There is insufficient consideration for the incidental tax compliance costs arising from the tax payment process, such as semi-annual withholding and final reporting." Official F added, "We hope for additional adjustments to deduction criteria and tax rates to encourage long-term investment by investors and to prevent investment contraction due to the tax."
Furthermore, opinions were expressed that if Fintax is introduced, the securities transaction tax should be gradually abolished.
Lee Yoon-soo, Director of Capital Market Policy at the FSC, explained, "Considering the current market situation, it is not advisable to implement Fintax immediately. The government has proposed a bill to defer it for two years."
He added, "If the National Assembly passes a bill to defer the introduction of Fintax after discussions, during the deferral period, we will thoroughly complete institutional measures to enhance protection for general investors, increase the attractiveness of our stock market by improving the global consistency of our capital market system, and expand the inflow of global investment funds."
Once introduced, Fintax will impose a 20% tax (25% on income exceeding 300 million KRW) on investors who earn income exceeding certain amounts (50 million KRW for stocks, 2.5 million KRW for others) from financial investments such as stocks, bonds, funds, and derivatives, regardless of whether they are major shareholders. Under current tax law, major shareholders are classified as those holding more than 1 billion KRW in listed stock or having a certain level of stock ownership, and a 20% tax is levied on capital gains from stock transfers.
Fintax is scheduled to be introduced next year, but the opposition party maintains its stance that it should be implemented as planned.
On the other hand, the current government intends to defer implementation for two years through tax law amendments. The government announced in July a tax law amendment bill to defer the introduction of Fintax for two years until 2025.
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