[Column] Postponement of Financial Investment Tax Benefits 'Big Players' Laughing Behind the Scenes

[Asia Economy Sejong=Reporter Son Seon-hee] "Everyone only talks about stocks, but the truly wealthy ‘big players’ invest in bonds."

This is a tip from a former economic official who worked at the Taxation Office of the Ministry of Economy and Finance. Recently, the number of bond investors asking him about the prospects of the Financial Investment Income Tax (FIIT) has increased significantly. For those who have managed tens of billions of won and enjoyed tax-exempt benefits, FIIT is certainly an ‘uncomfortable presence’.

With attention focused solely on capital gains tax on stocks (over 50 million won), FIIT has become the ‘main enemy’ of retail investors. However, it is also necessary to examine the true meaning hidden behind that anger.

FIIT is designed to tax not only stocks but also bonds, funds, derivatives, and other financial products moved by large investors. Of course, it was never easy. The income tax law amendment bill for the introduction of FIIT passed the National Assembly about two years ago after tremendous hardship. At that time, the Ministry of Economy and Finance tried to lower the major shareholder threshold from 1 billion won to 300 million won but faced strong opposition and withdrew the proposal. During this process, former Deputy Prime Minister for Economy Hong Nam-ki even offered his resignation.

Now, the Ministry of Economy and Finance is arguing that FIIT, which was introduced with great effort even at the cost of the country’s economic chief’s ‘resignation letter,’ should be postponed. The reason given is that it negatively affects the already difficult stock market. The major shareholder threshold, which was to be lowered from 1 billion won to 300 million won, has instead been raised tenfold to 10 billion won.

Regardless of the debate over the essence of FIIT, it is hard to readily understand the Ministry of Economy and Finance’s completely reversed stance on the same system. The materials from the 2020 tax law amendment clearly state that the purpose of introducing FIIT was to ‘revitalize the stock market.’ The person who led the bill in the 20th National Assembly to abolish securities transaction tax and introduce the current FIIT was none other than Deputy Prime Minister for Economy Choo Kyung-ho (then a member of the Liberty Korea Party).

Policies can change according to the philosophy of each administration’s national agenda. However, tax policies involving money must be more cautious. Public trust in asset taxation such as real estate and stocks is already at rock bottom. The government must not lose its ‘policy direction’ by being caught up in excessive political logic.