[The Editors' Verdict] Before Reforming Dividend Taxation, National Tax-Saving Accounts Must Come First

Correcting the Order of Tax Policies for Retirement and Asset Building
Long-Term Investment Platforms Like ISA Should Come Before Separate Taxation of Dividends

Korean society is aging at the fastest rate in the world. As life expectancy increases, the period of income gap after retirement has also lengthened. Because it is difficult to secure a stable retirement solely through the National Pension and retirement pensions, it is necessary to strengthen the institutional foundation so that individuals can manage their own assets and secure long-term sources of income.

In this context, the government and political circles are recently pursuing tax reforms to promote dividend investment. The core of these reforms is the introduction of separate taxation for dividend income. The intention is to create a virtuous cycle in which investors gain stable profits through dividends, while companies increase dividends to enhance investment appeal. However, regardless of this intention, the implementation method and actual effects must be carefully examined.

On the surface, separate taxation of dividend income appears beneficial to all investors, but in reality, it is more advantageous for high-income and high-asset individuals. Under the current tax law, if annual financial income (interest and dividends) exceeds 20 million won, the excess is combined with comprehensive income and subject to a progressive tax rate ranging from 6.6% to a maximum of 49.5%. In contrast, if separate taxation is allowed, financial income up to a certain amount is taxed at a flat rate of 15.4% (including local taxes), regardless of how high it is. The higher the investment amount, the greater the tax-saving effect, making it difficult for ordinary citizens with smaller investments to feel any real benefit. If tax benefits are concentrated on a specific group, controversy over tax equity is inevitable.

In order to overcome the undervaluation of the Korean stock market and encourage asset building among citizens, it is necessary to first establish a foundation for long-term investment before discussing separate taxation of dividend income. The tax deduction limits for pension savings and Individual Retirement Pension (IRP) accounts have already been reached by many workers, making it difficult to provide additional incentives. Broader tax support, such as increasing the deduction limits, is needed. This is not simply a tax cut, but a policy tool for retirement preparation and asset building for the public.

The Individual Savings Account (ISA) system also needs to be actively reformed. The ISA is a financial account that offers tax-free benefits up to a certain amount of returns, and the government can use it as a policy platform to guide how people manage their assets. In particular, since anyone can open an ISA regardless of income, it provides real tax-saving benefits to small-scale investors in the middle and lower income brackets. If the contribution limits and range of eligible investment assets are expanded, and the structure is improved to favor long-term investment, the ISA could become a foundation for national asset building.

International examples support this approach. Japan's NISA (Nippon Individual Savings Account) was not a short-term tax cut, but a national strategy to encourage long-term investment. Japan revamped the system with the "New NISA," significantly increasing the tax-free limit and removing the restriction on the tax-free period. As a result, public participation in investment expanded, simultaneously revitalizing the capital market and promoting retirement asset accumulation. The UK's ISA also provides account-based tax benefits to all citizens, pursuing both tax equity and market stability.

To achieve the fundamental goals of helping citizens build assets and improving the structure of the capital market, institutional foundations must be established first. Expanding the tax-free limit, broadening the range of eligible investment assets, and designing detailed tax incentives for long-term investment to make the ISA a national tax-saving account should be the priority. Only on this foundation should additional incentives such as separate taxation of dividend income be introduced. To embody the philosophy of policy, the order of implementation is just as important as the overall direction.