[2025 Audit] In Response to Criticism of Separate Taxation on Dividend Income... Koo Yoon-chul Says "Will Seek a Reasonable Solution"

Both Ruling and Opposition Parties Question Effectiveness of Separate Taxation on Dividend Income

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul stated on the 14th that he would "seek a reasonable solution" after both ruling and opposition parties voiced criticism of the proposed revision to the separate taxation of dividend income.

At the National Assembly's Planning and Finance Committee audit held that day, Park Sunghoon, a lawmaker from the People Power Party, pointed out, "To receive government incentives, companies must raise their dividend payout ratio to at least 25% and simultaneously achieve a 5% increase in average dividends over three years, which is practically impossible."

Previously, the government announced a tax law revision that would apply a lower tax rate to dividend income from high-dividend companies by separating it from comprehensive income. The measure targets dividend income received from listed companies with a dividend payout ratio of at least 40%, or at least 25% with an average annual increase of 5% or more over three years.

Deputy Prime Minister and Minister of Economy and Finance Koo Yoon-chul is responding to questions from lawmakers at the National Assembly's Planning and Finance Committee audit held on the 14th. 2025.10.14 Photo by Kim Hyunmin

The separate tax rates have been set according to the tax base: 14% for up to 20 million won, 20% for up to 300 million won, and 35% for over 300 million won. The intention is to encourage corporate dividends by setting the separate tax rates lower than the top comprehensive income tax rate of 45%.

Deputy Prime Minister Koo explained, "The separate taxation of dividend income was designed to promote dividends from companies with high dividend payout ratios, and we also considered fairness with other types of income." He added, "During discussions in the National Assembly, we will carefully consider and discuss what constitutes the optimal system design."

Lee Soyoung, a lawmaker from the Democratic Party of Korea, raised concerns about the highest tax rate under the separate dividend income taxation plan. She argued, "The top capital gains tax rate for major shareholders is 25%, so if the dividend tax rate is higher than this, there is still no incentive for major shareholders to pay dividends."

She also criticized the requirement for "an increase of at least 5% in average dividends over the previous three years," stating that it does not align with the government's policy of securing tax revenue. Lee said, "If companies meet this requirement, the annual dividend growth rate converges to 2.47%. This means raising dividends only by the annual inflation rate of 2-3%, yet offering a tax cut. How will you cope with the resulting decrease in tax revenue?"

Regarding the government's plan to apply the measure to dividends from the 2026 fiscal year, Lee noted, "Eligible companies will be confirmed in March 2027, and the policy will apply from the settlement dividends. Rational companies will naturally reduce their dividends next year."

In response, First Vice Minister of Economy and Finance Lee Hyungil said, "At the time, we wanted to implement this earlier, but due to various administrative difficulties, we postponed it by a year. We are currently reviewing related alternatives."