Deputy Prime Minister and Finance Minister Hong Nam-ki. (Yonhap)
South Korea will impose a new income tax on all gains made from financial investments, while reducing the securities transaction tax rate, Deputy Prime Minister and Finance Minister Hong Nam-ki said Thursday.
The move came in line with the government’s efforts to alleviate the widening socioeconomic gap here and to revitalize the stalled market amid the COVID-19 fallout.
“(The government) will establish a new taxation category for financial investment gains, starting 2022,” the fiscal chief said in an economic policy meeting held at Seoul Government Complex.
Also, starting 2023, all capital gains made from stock transactions will be classified as financial investment gains and face the renewed taxation rule, regardless of the amount. Capital gains of up to 20 million won ($16,623) per year, however, will be exempted and remain tax-free.
In order to maintain a tax revenue balance, the government will gradually cut down on the securities transaction tax rate. Under the plan, the given rate will fall by 0.1 percentage point each year from the current 0.25 percent, to reach 0.15 percent in 2023.
“The intention is to improve the current tax system, not to increase tax revenues,” said an official of the Ministry of Economy and Finance.
“The 95 percent (of the taxpayers) who do not face a transfer income tax are expected to have their tax burden alleviated.”
The securities transaction tax has been under fire for some time, with the financial investment market industry arguing that the tax would constitute double taxation if imposed simultaneously with transfer income tax.
Following up on the ruling Democratic Party of Korea’s electoral pledge, the Moon Jae-in administration was expected to abolish or at least phase out the disputed tax, as early as next year. The anticipated move was put off amid the epidemic crisis and the consequent fiscal burden upon the government.
After a series of public hearings, the government seeks to finalize its tax system revision plan by end-July and to submit it to the regular parliamentary session slated for September, officials said.
On Wednesday, the International Monetary Fund revised down Korea’s gross domestic product growth forecast for this year to a 2.1 percent contraction, down further from the 1.2 percent suggested in April. For the global economy, the IMF suggested a 4.9 percent dip this year, citing the prolonged COVID-19 spread.
Exerting all efforts to push the economy out of the deadlock, Seoul is currently working on effectuating a third supplementary budget bill worth 35.3 trillion won.
Hong once again renewed calls for the National Assembly to approve the fiscal plan by the end of this month, citing the urgent need to shore up key industries and protect jobs.
By Bae Hyun-jung (tellme@heraldcorp.com)