[The Editors' Verdict] Tax Justice, Resistance, and the Geumtu Tax

[Asia Economy Reporter Jeon Pil-su] Mr. Kim Hasu bought stocks for 300 million won and sold them for 200 million won. Although he suffered a loss of 100 million won, he still has to pay 460,000 won in securities transaction tax. Mr. Lee Gosu bought stocks for 100 million won, which doubled in value and sold for 200 million won. He earned 100 million won but only has to pay 460,000 won in transaction tax.

Mr. Kim Hasu, who incurred an investment loss of 100 million won, does not pay any tax. Mr. Lee Gosu, who earned 100 million won in investment profit, has to pay 22 million won in taxes.

The first case reflects the current Korean stock investment taxation method. Regardless of profit or loss, 0.23% of the selling price must be paid as tax (securities transaction tax). The second case is the American method. A 22% tax (capital gains tax + local income tax) is imposed on profits exceeding 2.5 million won.

Which method is fairer? Considering the tax principle of "taxes where income exists," adopting the American-style capital gains tax is closer to the correct answer. This is also the background for the introduction next year of the financial investment income tax (Geumtu Tax) that taxes investment income exceeding 50 million won.

However, individual investors opposing the Geumtu Tax raise their voices, claiming it is an unfair tax. They argue that the Geumtu Tax is imposed only on individuals, excluding foreigners and institutions. While this sounds reasonable, foreigners and institutional investors also have their say. They pay corporate tax. If they had to pay both corporate tax and Geumtu Tax, it would result in double taxation.

That said, the plan to introduce the Geumtu Tax includes lowering the transaction tax to 0.15%, and there is a valid point that most of the benefits from this reduction will go to foreigners and institutional investors. Domestic and foreign institutional investors, whose trading volumes are astronomical, are more sensitive to transaction taxes. When selling 1 trillion won worth of stocks, they currently have to pay 2.3 billion won in taxes, but in 2025, they will only have to pay 1.5 billion won. As transaction taxes decrease, trading strategies such as high-frequency trading (HFT), which were difficult to execute due to high transaction taxes, can be employed more diversely. This is why individuals, who are already at a disadvantage compared to institutions, worry that lowering transaction taxes will make them even more disadvantaged.

Concerns that the introduction of the Geumtu Tax will act as a negative factor in an already difficult market are very realistic. Every year, near the end of the year, stock prices often fall due to large investors selling to avoid capital gains tax. This frequently occurs in the KOSDAQ market, where individual investors have a high proportion. In reality, the number of investors who will pay the Geumtu Tax does not exceed 1%. The statistics are based on when the market was good until last year, so the ratio would be even lower in a difficult market like this year. Most individual investors opposing the Geumtu Tax have a very low probability of paying it. However, they may be more sensitive to their stocks falling than to the taxes paid by the wealthy. Their concern is not about the taxes paid by the rich but about their own stocks dropping because of it.

The strongest theoretical backing for the introduction of the Geumtu Tax is tax justice. Because it emphasizes justice, it is not easy for politicians or academia to openly oppose it. Those advocating for the abolition or at least the postponement of the Geumtu Tax argue that it does not help the market or individual investors. This argument is actually powerful. The implementation of the Geumtu Tax has been postponed several times and its conditions have been eased. In Taiwan, for example, the stock capital gains tax was abolished after the market plunged following its implementation. Policies emphasizing tax justice have been overwhelmed by tax resistance. With only a month left until the Geumtu Tax is introduced, will it be able to settle this time?