[Exclusive] ISA Benefits Greatly Expanded Following President Yoon's Directive

Yoon Says "Tax Reform Must Be Bolder"
Considering Further Expansion of Tax-Exempt Limits and Contributions
Ministry of Economy and Finance to Report Additional Tax Expansion Plan to February National Assembly

The government, including the Ministry of Economy and Finance, is considering additional expansions of the tax-exempt benefits for general Individual Savings Accounts (ISA). While strongly considering abolishing the mandatory 3-year subscription period, they are also carefully examining plans to further raise the tax-exempt limits. Previously, the Ministry of Economy and Finance and the Financial Services Commission announced a business report that included doubling the ISA tax-exempt limit and abolishing the Financial Investment Income Tax (FIIT). This move followed President Yoon Suk-yeol's remark to "make tax reforms more bold" regarding ISA accounts.

According to the government and the National Assembly on the 31st, the Taxation Office of the Ministry of Economy and Finance is reviewing abolishing the mandatory subscription period (3 years) for ISA accounts, as well as further expanding the ISA contribution and tax-exempt limits beyond what was disclosed in the business report. The Ministry plans to report to the National Assembly's Planning and Finance Committee in February and then discuss related matters with the Financial Services Commission.

Yoon's "Make Tax Reform More Bold" Remark Prompts Ministry of Economy and Finance and FSC to Reconsider ISA Policy

The background for the Ministry of Economy and Finance's additional expansion of ISA tax benefits is President Yoon's statement. On the 17th, during the presidential business report, the Ministry and the Financial Services Commission announced plans to raise the ISA tax-exempt limit from 2 million KRW to 4 million KRW annually and increase the contribution limit from 20 million KRW to 40 million KRW annually.

The trigger was a question raised during a business report held in the form of a public livelihood discussion. Among attendees from various sectors, office worker Kwon So-young said, "As the President promised, please abolish the FIIT and improve transaction taxes and ISA so that they provide real benefits." In response, the Ministry of Economy and Finance stated, "The current ISA tax-exempt limit is between 2 million and 4 million KRW, but we plan to expand it to between 5 million and 10 million KRW, and also increase the total contribution limit from 100 million KRW to 200 million KRW."

However, President Yoon, after hearing the Ministry's response, said, "If our country has to pay more taxes compared to countries with rational tax systems in financial product markets, naturally our market will dry up," and urged, "Please make tax reforms more bold."

Photo by Dongju Yoon doso7@

President Yoon's unusual direct call for "bolder tax reform" reportedly unsettled the Ministry of Economy and Finance and the Financial Services Commission. This was because, during a pre-briefing for reporters the day before the business report, many questions were raised about the estimated revenue loss and fiscal concerns due to tax cuts. This is why the Ministry is prioritizing reviewing the abolition of the mandatory subscription period while additionally considering ISA tax benefits.

At the same time, it is known that they are carefully examining further expansions of the tax-exempt and contribution limits. A government official said, "Since the President said to 'make it more bold' after hearing the Taxation Office's response, related improvements to tax benefits should also be considered."

However, it is expected that the additional tax-exempt benefits will be given to general ISAs rather than the newly established 'Domestic Investment ISA.' This is because providing additional tax-exempt benefits to the Domestic Investment ISA would inevitably attract criticism of 'tax cuts for the wealthy.' Currently, those subject to comprehensive financial income taxation cannot subscribe to ISA accounts, but the newly established Domestic Investment ISA allows those subject to the Financial Investment Income Tax to subscribe.

Concerns Over Fiscal Health Due to Consecutive Tax Cuts... Tax-Exempt Benefits Likely to Be Carefully Coordinated

[Image source=Yonhap News]

If the general ISA tax-exempt benefits are further expanded, it is expected that Japan's policy will be referenced. Japan significantly increased the tax-exempt benefits of NISA (Japan's version of ISA) starting this year. This is part of the economic policies introduced by Prime Minister Fumio Kishida after taking office in 2021 under the slogan of 'New Capitalism.' The tax cut policy aims to encourage Japanese citizens, whose assets are concentrated in safe assets like savings and deposits, to invest. Ultimately, the goal is to increase the assets of Japanese citizens and strengthen the middle class.

Japan changed the NISA tax-exempt period from the existing 5 years to unlimited and tripled the annual investment amount (from 1.2 million yen to 3.6 million yen). Accordingly, the Japanese government expects the NISA purchase amount over the next five years to double from the current 28 trillion yen to 56 trillion yen. It is reported that the Financial Services Commission referred to this when including ISA tax benefits in this year's business report.

However, there are expected to be limits to further expanding the tax-exempt and contribution limits. This is due to criticism over the expanding fiscal deficit caused by consecutive tax cut policies, including the existing ISA tax-exempt expansion and FIIT abolition. A government official said, "Although the President demanded tax reform by citing other countries' cases, it is difficult to further expand tax-exempt benefits to the level of Japan's NISA."

[Image source=Yonhap News]

Earlier, the Ministry of Economy and Finance explained in a pre-briefing for the Financial Services Commission's business report, "If ISA tax benefits are expanded as per the business report, tax revenue is expected to decrease by about 200 to 300 billion KRW," adding, "This is a static estimate that does not consider the virtuous cycle structure of the Financial Services Commission's policies." Increasing the ISA tax-exempt scale with the reviewed contents will also increase the scale of tax revenue reduction.

One reason the Ministry is carefully reviewing this is the revenue loss due to the formalization of FIIT abolition. Previously, the National Assembly Budget Office stated that if FIIT is implemented from 2025, tax revenue will increase by 4.0328 trillion KRW over three years until 2027. This means that at least 4.6328 to 4.9328 trillion KRW less tax revenue will be collected over the next three years from these two policies alone.

Meanwhile, the government, including the Ministry of Economy and Finance, plans to explain the necessity of FIIT abolition and additional expansion of ISA tax-exempt benefits to members of the National Assembly's Planning and Finance Committee in February and request cooperation for the passage of related bills.