[AK Radio] Democratic Party Links Abolition of Financial Investment Tax to Commercial Act Amendment

Progressive Camp Strongly Opposes Capital Gains Tax Abolition
Capital Gains Tax Abolition Likely to Be Discussed Alongside Tax Law Amendments

Lee Jae-myung, leader of the Democratic Party of Korea, has abruptly agreed to abolish the Financial Investment Income Tax (hereinafter referred to as the FIIT). The controversy over the FIIT, which has been a hot topic in politics since its introduction in 2020, has entered a new phase. On the 4th, at the Supreme Council meeting, Lee officially declared his agreement to abolish the tax, stating, "I have reached the conclusion that the structural risks and vulnerabilities of the stock market cannot be resolved, so I agree to abolish it."

The FIIT is a system that imposes a tax exceeding 20% on profits over 50 million KRW earned from financial investments such as stocks, bonds, and funds. Although the law was passed in July 2020 with implementation scheduled for January 2023, it was postponed for two years until January 2025 due to strong opposition from individual investors. Individual investors strongly opposed having to pay more than 20% tax when they had only been paying transaction taxes, which also became a significant burden for the political sphere.

Last year, President Yoon Suk-yeol mentioned abolishing the FIIT, and the People Power Party strongly pushed for it as "the best way to revive the stock market." Meanwhile, within the Democratic Party, debates over implementation, postponement, and abolition continued. In particular, Jin Seong-jun, the Policy Committee Chair, showed a firm stance that the tax should be implemented as scheduled, reflecting internal party disagreements.

Lee’s agreement to abolish the FIIT is interpreted as an example of his recent political centrist pragmatic approach. Since announcing his candidacy for party leader, he had mentioned the need to postpone the FIIT. Recently, as a negative frame called 'Jaemyeong Tax (tax decided by Lee Jae-myung)' formed among investors, it is analyzed that he sought to block this early. There is also a glimpse of his intention to create a favorable environment ahead of two first-instance verdicts scheduled for November.

However, this decision has sparked fierce opposition from the progressive camp. Organizations such as the Citizens’ Coalition for Economic Justice, Lawyers for a Democratic Society (Minbyun), the Korean Confederation of Trade Unions, and the People's Solidarity for Participatory Democracy issued simultaneous critical statements. They expressed concerns that securing funding for the universal welfare policies pursued by the Democratic Party would become difficult and pointed out that this decision contradicts the party’s principle of "mitigating asset inequality through fair taxation" stated in its platform.

Especially, the Party for National Innovation and the Progressive Party issued unusually strong criticisms. Hwang Un-ha, floor leader of the Party for National Innovation, directly criticized Lee, saying, "Wake up from the illusion of being 'presidential' (a term used to mean 'president-like')."

The abolition of the FIIT also raises concerns from a revenue perspective. Initially, the reduction of the securities transaction tax was decided on the premise of introducing the FIIT, but now the FIIT is being abolished while only the securities transaction tax is being reduced. In the face of a severe fiscal deficit, this is pointed out as potentially further weakening the tax revenue base.

The Democratic Party, conscious of the backlash against abolishing the FIIT, proposed revising the Commercial Act as an alternative. The core is to expand the duty of loyalty of directors, currently limited to companies, to shareholders as well. More than ten related bills have already been proposed.

However, the business community strongly opposes this, saying, "The FIIT is preferable." They are concerned that investment decisions by the board of directors will be restricted and that lawsuits may proliferate. In particular, they oppose the introduction of a duty of effort, arguing that it undermines the predictability of corporate management.

The government and ruling party also acknowledge the need to amend the Commercial Act but are struggling to devise a compromise considering the concerns of the business community. The Democratic Party plans to handle the abolition of the FIIT and the amendment of the Commercial Act as a package. Fierce negotiations between the ruling and opposition parties are expected during the regular National Assembly session, which is anticipated to continue until the end of December.

In particular, the Democratic Party has stated that it will not unilaterally pass the abolition of the FIIT at the plenary session on November 28 but will discuss it together with the entire tax law amendment bill. In this process, supplementary measures including the amendment of the Commercial Act are expected to be addressed together. A new phase of negotiations between the ruling and opposition parties is anticipated in this regard.