[General Election Pledge Analysis②] Capital Gains Tax "Abolition" VS "Implementation"... ISA and Virtual Asset Tax Policy 'Disagreement'

Ruling Party "Tax Increase on Small Shareholders," Opposition "Minimal Impact"
Disagreement Over Timing of Virtual Asset Tax Implementation
ISA Contribution Limits: Ruling Party 200 Million KRW, Opposition 150 Million KRW

Both the ruling and opposition parties empathize with the issue of the 'Korea Discount' in the Korean stock market, but sharply disagree on solutions. They also have differing opinions on tax systems that directly affect the real economy of the people, such as the financial investment income tax (금투세) and virtual assets.

First, the People Power Party intends to abolish the financial investment income tax scheduled to be implemented next year. The financial investment income tax is levied on profits generated from all financial investment products such as stocks, bonds, funds, and derivatives. The tax rate is 20%, increasing to 25% if the taxable base exceeds 300 million KRW. For income from domestic listed stocks, a deduction of 50 million KRW applies, and for other financial investment income, a deduction of 2.5 million KRW is granted. Although it was originally scheduled to be implemented last year, it was postponed for two years through bipartisan agreement.

The People Power Party views the financial investment income tax as a 'small shareholder tax increase plan.' They particularly point to the financial investment income tax as a cause of the undervaluation phenomenon in the Korean stock market known as the 'Korea Discount.' Currently, general investors are only subject to stock transaction tax, and no separate tax is imposed on capital gains. The government and ruling party believe that if the financial investment income tax is implemented, imposing at least a 20% tax, it could intensify the outflow of foreign investment funds.

On the other hand, the Democratic Party supports the implementation of the financial investment income tax from next year. They argue that since only about 1% of taxpayers are subject to this tax, its impact on the public is minimal, and most individual investors will benefit from reductions in securities transaction tax. Concerns have also been raised that abolishing the financial investment income tax would worsen the shortfall in tax revenue. According to the Budget Office, abolishing the tax would reduce national tax revenue by over 1 trillion KRW annually.

Opinions also differ on the timing of taxation on income from virtual assets. According to the amended Income Tax Act, virtual assets will be taxed as miscellaneous income at a 20% rate starting next year. The ruling party believes that before introducing taxation next year, a virtual asset disclosure system should be established and the Basic Virtual Asset Act enacted first. Conversely, the Democratic Party proposes to proceed with taxation as planned but raise the deduction limit from 2.5 million KRW to 50 million KRW.

Both parties agree on raising the contribution limit for ISA (Individual Savings Account), but differ on the extent of the increase. ISA is a financial product introduced in March 2016 to help build wealth through tax savings. It allows deposits, ETFs, and equity-linked securities (ELS) to be held in a single account, with tax exemption benefits on earnings up to 2 million KRW (4 million KRW for the low-income type). The annual contribution limit is 20 million KRW, with a maximum total contribution of 100 million KRW.

The People Power Party proposes doubling the annual contribution limit to a total of 200 million KRW (40 million KRW per year) and expanding the tax-exempt earnings limit to 5 million KRW (10 million KRW for the low-income type). The Democratic Party suggests increasing the annual contribution limit by 1.5 times to a total of 150 million KRW (30 million KRW per year) while offering an unlimited tax exemption limit as a bold pledge.