[Reporter’s Notebook] Separate Taxation of Dividend Income: "Tax Cut for the Wealthy" or "Market Normalization"?

Controversy Over "Tax Cuts for the Wealthy" Targeting a Select Few Conglomerates
But Dividends Apply to All Shareholders
Major Shareholders Gain a Legal Means to Secure Profits
Potential for Market Structure Reform by Addressing K-Governance Issues

The government is set to announce a tax reform plan that includes the separate taxation of dividend income (imposing taxes on earnings from stock dividends separately rather than combining them with other income). This has sparked ongoing controversy over whether it constitutes a "tax cut for the wealthy." Although this is a key policy of the new administration, there is significant opposition even within the ruling party. In particular, Jin Sungjoon, a member of the Democratic Party of Korea, strongly opposes the plan, arguing that most dividend income is concentrated among high-income earners and that the reform would benefit only a small number of conglomerates. He insists that a cautious approach is necessary, as it would grant privileges to the top 0.1% of income earners.

However, opposing the measure solely on the grounds that some individuals would benefit more is a narrow perspective on the purpose of the policy. The separate taxation of dividend income would benefit all participants in the capital market, including so-called "ant" retail investors. In Korea, the largest recipients of dividends are pension funds, including the National Pension Service. This has the effect of increasing retirement funds for the public. Additionally, Lee Soyoung, another member of the Democratic Party of Korea, pointed out that even if Samsung Electronics' dividends increase by 2 trillion won, the amount allocated to the conglomerate family (including related parties) would be only about 100 billion won.

This measure would also help improve the overall structure of the market. The lack of transparency in the governance of major shareholders and owner families has been a primary cause of the "Korea discount." There have been frequent cases of indirect use of company assets or profit transfers through internal transactions. With the introduction of separate taxation for dividend income, these individuals would no longer need to go to such lengths. Under comprehensive taxation, it was difficult to respond to annual changes in taxes as real estate rental income, interest, and salaries were all combined. In contrast, separate taxation fixes the tax rate. Because after-tax returns can be predicted, securing income through dividends becomes a lower-risk option. This reduces resistance from minority shareholders and can send a positive signal regarding corporate value. It also provides owner families with an incentive to boost share prices.

Furthermore, this is the most straightforward way to increase foreign investors' preference for the domestic market. The United States and Japan have already encouraged long-term investment through regular dividend policies. In contrast, Korea has suffered from the stigma of being an "undervalued blue-chip market" due to a combination of high tax rates and a tendency to avoid dividends. The separate taxation of dividend income could serve as a structural turning point, finally enabling the basic principle that all shareholders desire rising share prices to function as intended.

Dividends are not merely cash payments. They are the result of a combination of corporate autonomy and responsibility, management’s long-term vision, and market trust. The current policy of separate taxation for dividend income is not simply a tax cut for the wealthy, but rather the first step toward normalizing the market. Taiwan, fearing some of the side effects and costs of introducing high-speed rail, opted to purchase Japanese Shinkansen trains and sent them back to Japan for major maintenance. Even after 20 years, Taiwan continues to use imported Shinkansen trains. In contrast, Korea sent engineers to France and devoted itself to national research and development, eventually developing its own technology and exporting domestically produced high-speed trains 20 years later. Dividend policy decisions should also be made with a long-term perspective.