[News Analysis] "KOSPI 5000 vs. Tax Revenue" Dilemma... Why Is the Major Shareholder Capital Gains Tax Standard Controversial?

Jin Sungjoon: "Securing Tax Revenue Is Necessary" vs Lee Soyoung: "Premature to Implement"
Jung Cheongrae Urges Democratic Party Lawmakers to Refrain from Public Statements
Han Jeongae: "Collecting Opinions Until the 14th"

The political sphere is currently embroiled in controversy over a proposed tax law revision that would expand the criteria for major shareholders subject to stock transfer taxes from those holding "at least 5 billion won per stock" to those holding "at least 1 billion won per stock." While some argue that the change is inevitable to secure tax revenue, there is significant backlash due to concerns that it could negatively impact the so-called "money move," where funds previously concentrated in the real estate market shift into the stock market. Amid mounting calls for reconsideration, there is speculation that the Democratic Party of Korea may seek a compromise.

On August 5, both inside and outside the Democratic Party, there was growing unrest over the proposed tax law revision regarding the qualifications for major shareholders subject to the stock transfer tax. On July 31, the government announced its direction for tax law revisions, which included lowering the threshold for stock transfer tax liability and thereby expanding the number of taxpayers. In response, both the capital market and the political community expressed concerns about potential market distortions, such as investors holding more than 1 billion won per stock engaging in year-end sell-offs to avoid the tax burden. In fact, on August 1, the day after the tax law announcement, the KOSPI closed at 3,119.41, down 126.03 points (3.88%) from the previous session, showing a sensitive reaction. Regarding this, former Democratic Party Policy Committee Chair Jin Sungjoon and others argued that, based on past precedent, the market impact would be minimal and that securing tax revenue is necessary to address the weakened national finances.

Jin Sungjun, former chairman of the Democratic Party Policy Committee, is leaving after a closed party-government meeting on tax reform held at the National Assembly Members' Office Building on July 29, 2025. Photo by Kim Hyunmin

Currently, controversy over this issue is intensifying within the Democratic Party, and the stock market is also reacting sensitively. In response, Democratic Party leader Jung Cheongrae even issued a directive urging party members to refrain from making public statements on the matter.

Why is this issue so contentious?

According to statements from political and tax law officials, the root of the issue dates back to last year's controversy over the financial investment income tax. At that time, former Chair Jin and others upheld the principle that taxation should be imposed wherever there is income, as a matter of tax justice. However, when the Yoon Suk-yeol administration and the People Power Party called for the abolition of the financial investment income tax and stock investors responded favorably, then-Democratic Party leader Lee Jaemyung and others shifted their stance to support abolition. Former Chair Jin's argument for expanding taxation was based on the need for a taxation principle on asset markets, given the deteriorating tax base.

On the other hand, groups such as the "KOSPI 5000 Committee" argue that incentives in tax policy are necessary to redirect funds from the real estate-heavy domestic asset market into the stock market. Democratic Party lawmaker Lee Soyoung, for example, stated on social media that "such policies could be discussed after the KOSPI surpasses 4,000 and stabilizes to some extent," suggesting that it is premature to pursue this change. She argued that it would not be too late to make a decision after a clear shift in capital market flows is observed.

However, as the series of confusing developments continues, criticism is mounting over the Democratic Party's ability to coordinate its policies. In this context, Song Eonseok, interim leader and floor leader of the People Power Party, said, "How can the market trust the government when it signals right but turns left in situations like this?"

Han Jeongae, the newly appointed Democratic Party Policy Committee Chair, who received the policy reins from leader Jung, stated, "The government's tax reform plan is open for public comment until the 14th, and we are currently collecting opinions from various sectors." She added, "We will carefully listen to public opinion on the tax reform plan and deliver those opinions to the government." She emphasized that, since the government's tax law revision plan has not yet been finalized, public input will be considered. In connection with this, Lim Ija, chair of the National Assembly Planning and Finance Committee (People Power Party), told reporters, "I spoke with Chair Han and, based on her thoughtful tone, she said, 'We are closely monitoring this issue.'"

There is growing speculation that a compromise will be reached, setting the major shareholder qualification threshold somewhere higher than 1 billion won per stock but lower than 5 billion won per stock. Kim Shineon, a tax law expert and certified tax accountant, commented, "It seems that the tax law revision did not take into account factors such as inflation or capital flows," and added, "If the threshold had been eased to around 3 billion won instead of 1 billion won, the backlash might not have been this strong."