🚨 Tax Revenue vs KOSPI 5000: Lee Jae-myung Government's Stock Market Tax Dilemma

Today Korean Economic News | 2025.07.22

📌 Market anxiety grows as government considers lowering major shareholder tax threshold and raising transaction taxes

💬 The government announced it is considering lowering the threshold for major shareholder capital gains tax on listed stocks from the current 5 billion won to 1 billion won. This would reverse the easing measures from the Yoon Suk-yeol administration, explained as a necessary choice to secure tax revenue. At the same time, discussions about raising securities transaction tax are underway, suggesting comprehensive strengthening of capital market taxation. However, critics point out this conflicts with President Lee Jae-myung's election promise to achieve 'KOSPI 5000'. Experts expressed concerns, saying "While we understand the need to secure tax revenue, it's contradictory to simultaneously pursue policies that could shrink the capital market."

1️⃣ Easy Explanation

The government wants to raise more taxes from stocks to get more money, but this might hurt the stock market, creating a big problem.

First, let me explain what 'major shareholder capital gains tax' means. It's a tax that people who own lots of stocks pay when they sell those stocks. For example, if someone owns Samsung Electronics stocks worth 5 billion won and sells them for a profit, they pay tax on that profit.

During the Yoon Suk-yeol government, this threshold was raised from 1 billion won to 5 billion won. This meant only people who owned more than 5 billion won worth of stocks had to pay this tax. But now the Lee Jae-myung government wants to lower it back to 1 billion won. This means people who own more than 1 billion won in stocks will have to pay tax when they sell.

The problem is this could cause 'tax-avoidance selling' at the end of the year. Major shareholders might sell large amounts of stocks at year-end to avoid taxes, which could make stock prices drop sharply. Regular investors would also get hurt by this.

Another problem is raising the 'securities transaction tax'. This is a tax paid every time you buy or sell stocks. Currently, it's 0.15% of the trading amount. If you buy 10,000 won worth of stocks, you pay 15 won in tax. The government is considering raising this rate.

But President Lee Jae-myung promised 'KOSPI 5000' during the election. KOSPI is currently around 2,500, and he promised to raise it to 5,000. However, if taxes on stocks increase, investors might leave the stock market, making KOSPI fall instead of rise.

Foreign investors are especially sensitive to taxes. If Korea's stock market tax burden becomes too heavy, they might move their money to other countries. This could shrink the entire stock market.

In the end, the government faces a dilemma where collecting taxes now might hurt the stock market in the long run.

2️⃣ Economic Terms

📕 Major Shareholder Capital Gains Tax

Major shareholder capital gains tax is a tax paid by shareholders who own large amounts of listed stocks when they sell their shares.

• Currently, shareholders owning more than 5 billion won are classified as major shareholders and pay a 22% tax rate.
• The government wants to lower this threshold to 1 billion won so more investors pay this tax.
• Regular investors are exempt from tax up to 2.5 million won in gains, but major shareholders pay tax on all profits.

📕 Securities Transaction Tax

Securities transaction tax is a tax paid proportional to the trading amount every time you buy or sell stocks.

• The current rate is 0.15% of the trading amount, which is high among OECD countries.
• If you sell 10,000 won worth of stocks, you pay 15 won in tax.
• Higher transaction taxes can reduce trading volume and market liquidity.

📕 Tax Revenue Security

Tax revenue security means the government collecting taxes to fund necessary spending.

• This becomes important when government spending increases or tax income decreases due to economic slowdown.
• However, collecting too many taxes can hurt economic activity, so balance is important.
• Especially strengthening capital market taxation can lead to reduced investment, requiring careful approach.

📕 KOSPI 5000

KOSPI 5000 means the Korea Composite Stock Price Index reaching 5,000 points.

• KOSPI is currently around 2,500, so reaching 5,000 requires doubling.
• This needs improved corporate performance, attracting foreign investment, and market system improvements.
• Excessive tax burden can be an obstacle to achieving this goal.

3️⃣ Analysis and Economic Outlook

✅ Background and Impact of Major Shareholder Tax Threshold Changes

• Let's analyze the economic background for lowering the major shareholder capital gains tax threshold and its market impact.

  • First, worsening government finances are creating pressure to secure tax revenue. Government fiscal balance has deteriorated due to recent economic slowdown and expanded welfare spending. Especially after COVID-19, continued expansionary fiscal policy has rapidly increased national debt, and interest burden has also grown. The government is pushing to strengthen taxation on high-income earners and wealthy asset holders to secure insufficient tax revenue. Lowering the major shareholder capital gains tax threshold from 5 billion won to 1 billion won is estimated to secure about 3-5 trillion won in additional tax revenue.

  • Second, there are concerns that tax-avoidance selling could increase market instability. If the capital gains tax threshold is lowered, major shareholders are likely to sell stocks intensively at year-end to avoid taxes. This phenomenon, called the 'December effect', has similar precedents in the past. Concentrated mass selling can cause sharp stock price declines, which can also cause significant damage to regular investors. Also, complex indirect transactions or family gifts to avoid taxes may increase, causing market distortion.

  • Third, there are concerns about weakening capital market competitiveness in the medium to long term. Strengthening taxation on major shareholders can hinder corporate governance improvement. If founders or professional managers have to pay high taxes when selling stocks even after growing their companies, their motivation for entrepreneurship or management improvement may decrease. Also, cases of relocating companies overseas or delaying public offerings where tax burden is lighter than Korea may increase. This can weaken the growth momentum of Korea's capital market.

• Changing the major shareholder capital gains tax threshold may have short-term tax revenue effects, but negative impacts on market stability and long-term competitiveness could be significant, requiring careful approach.

✅ Securities Transaction Tax Increase Discussion and Impact on Market Liquidity

• Let's examine the specific impact of securities transaction tax increases on capital markets and alternatives.

  • First, securities transaction tax increases can lead to reduced trading volume and deteriorated market liquidity. Korea's current securities transaction tax rate of 0.15% is higher than major Asian financial hubs like Singapore (0%) and Hong Kong (0.1%). When transaction taxes rise, investors reduce trading frequency due to increased trading cost burden. Especially foreign institutional investors who engage in high-frequency trading react very sensitively to transaction tax increases. Reduced trading volume leads to decreased market liquidity, which increases stock price volatility. As a result, regular investors may also find it difficult to buy and sell stocks at desired prices.

  • Second, there are concerns about capital market shrinkage due to foreign investor exodus. Foreign investors account for more than 30% of Korean stock market trading, making them important participants. They decide investment destinations by comparing profitability and costs among markets in various countries worldwide. If securities transaction tax increases, Korea's market attractiveness decreases and foreign capital is likely to move to other countries. Actually, whenever transaction taxes increased in the past, foreign net selling increased. Foreign capital exodus can lead to KOSPI decline and won weakness, negatively affecting the entire economy.

  • Third, this can negatively impact capital market development and corporate fundraising in the long term. Increased transaction tax burden may make companies reluctant to go public or turn to other countries' markets. Also, reduced investor participation can make corporate fundraising through stock markets more difficult. This can be a major blow especially to venture companies and SMEs in early growth stages. As a result, there are concerns that Korea's innovation momentum and growth potential may weaken.

• Securities transaction tax increases are likely to cause greater long-term losses from market shrinkage than short-term tax revenue increase effects, requiring very careful review.

✅ Contradiction Between KOSPI 5000 and Stock Market Tax Policy

• Let's analyze the contradictions between the government's KOSPI 5000 goal and stock market tax strengthening policy and solutions.

  • First, attracting foreign investment and market activation are essential to achieve KOSPI 5000. For KOSPI to rise from the current 2,500 level to 5,000, market size must double. This requires not only improved corporate performance but also active participation by foreign and institutional investors. However, strengthening capital market taxation would likely cause these investors to leave the Korean market instead. Especially global investors can move funds to other countries with tax benefits, making KOSPI 5000 goal achievement more difficult.

  • Second, lack of policy consistency is undermining market credibility. The Lee Jae-myung government promising KOSPI 5000 on one hand while strengthening stock market taxation on the other appears contradictory. Investors value predictability of government policy, and conflicting policy directions increase market uncertainty. Such policy confusion can lose investor trust and ultimately become an obstacle to market development.

  • Third, a balanced approach pursuing both tax revenue security and market activation is needed. While government fiscal pressure is understandable, securing tax revenue by shrinking capital markets can bring greater long-term losses. Instead, it's better to naturally increase tax revenue by expanding trading volume and corporate performance through market activation. For example, policy should shift toward expanding market size through IPO activation, pension fund stock investment expansion, and individual pension stock fund investment expansion.

• To achieve KOSPI 5000, transition to market-friendly policies rather than strengthening stock market taxation is necessary, allowing simultaneous pursuit of tax revenue security and market development.

4️⃣ Conclusion

The dilemma between securing tax revenue and achieving KOSPI 5000 that the Lee Jae-myung government faces raises fundamental questions about policy consistency and long-term vision. Concerns are becoming reality that strengthening stock market taxation to solve short-term fiscal pressure could bring greater economic losses in the long run.

Lowering the major shareholder capital gains tax threshold to 1 billion won and raising securities transaction tax would certainly have short-term tax revenue increase effects. However, these policies could shrink investor market participation and especially accelerate foreign investor exodus. As a result, the entire stock market could stagnate, making it difficult to maintain even current levels, let alone achieve KOSPI 5000.

More serious is the decline in credibility due to lack of policy consistency. Promising KOSPI 5000 during elections and then strengthening stock market taxation after winning creates confusion for investors. Such policy confusion undermines predictability of Korea's capital market and becomes an obstacle to long-term development.

Of course, government fiscal pressure is a realistic problem. However, tax revenue that grows naturally by activating markets is a more sustainable and sound method than tax revenue obtained by sacrificing capital markets. The real answer is expanding market size through IPO activation, pension fund and individual pension stock investment expansion, and deregulation.

Looking at overseas cases, Singapore and Hong Kong grew into Asian financial hubs with low transaction taxes and investment-friendly policies. On the other hand, markets where investors left due to high tax burdens experienced long-term stagnation. Korea also stands at an important crossroads in choosing which path to take.

Ultimately, the government must shift policy direction to prioritize capital market development and economic growth from a long-term perspective without being absorbed in short-term tax revenue security. KOSPI 5000 can become reality rather than just a dream, but this requires market-friendly policies and consistent vision.