🚨 Lee Jae-myung Government's First Tax Increase

Today Korean Economic News for Beginners | 2025.08.01

0️⃣ Corporate Tax and Securities Transaction Tax Restored to Raise 8 Trillion Won

📌 Normalization or Policy Retreat? Mixed Reviews on Lee Jae-myung Government's First Tax Reform

💬 The Lee Jae-myung government announced its first tax reform since taking office, bringing corporate tax and securities transaction tax back to previous levels that were lowered during the Yoon Seok-yeol administration. The maximum corporate tax rate will rise from 25% to 27.5%, securities transaction tax from 0.20% to 0.25%, and the threshold for major shareholder stock capital gains tax will be lowered from 1 billion won to 500 million won. The government says this will secure about 35 trillion won in additional revenue over the next five years. Experts say this is a necessary measure for fiscal health but criticize the lack of a consistent tax policy roadmap.

1️⃣ Easy to Understand

The government announced a policy to make companies and stock investors pay more taxes. This means bringing back the original tax rates that the previous government had reduced.

Let me first explain what "tax reform" means. Tax reform is changing the tax system. This includes raising or lowering tax rates, creating new taxes, or removing existing ones.

The main point of this tax reform is to raise taxes that were lowered during the Yoon Seok-yeol government. It's like a store that was selling items on sale and now returns to original prices.

Let's look at the specific changes. First is corporate tax. Corporate tax is the tax companies pay on their profits. The maximum rate will go up from 25% to 27.5%. For example, if a company made 10 billion won profit, they used to pay 2.5 billion won in taxes, but now they must pay 2.75 billion won.

Second is securities transaction tax. This is a tax paid when selling stocks, based on the transaction amount. It will rise from 0.20% to 0.25%. If you sell 100 million won worth of stocks, you used to pay 200,000 won in taxes, but now you must pay 250,000 won.

Third, the threshold for major shareholder stock capital gains tax will be strengthened. A major shareholder means someone who owns a lot of company stock. The threshold will be lowered from 1 billion won to 500 million won. This means people with 500 million won or more in stocks must now pay capital gains tax.

The government is taking these steps because it needs money. To carry out government promises and increase welfare, more tax revenue is needed, but the current situation lacks funds. The government says these measures will secure 35 trillion won in additional revenue over the next five years.

However, experts have mixed opinions. Some say it's "a necessary measure for fiscal health," while others criticize it as "lacking policy consistency."

In the end, companies and investors will pay more taxes, while the government will secure more revenue.

2️⃣ Economic Terms

📕 Corporate Tax

Corporate tax is a tax imposed on income earned by companies (corporations).

• Unlike personal income tax, this tax is imposed on company profits.
• It uses a progressive tax structure where higher profits face higher tax rates.
• With the maximum rate rising from 25% to 27.5%, large companies will face increased tax burdens.

📕 Securities Transaction Tax

Securities transaction tax is a tax imposed proportionally to the transaction amount when selling stocks.

• It's not imposed when buying stocks, only when selling them.
• You must pay 0.25% of the transaction amount as tax.
• The more active stock trading is, the more tax revenue can be secured.

📕 Capital Gains Tax

Capital gains tax is a tax imposed on profits (gains) from selling assets.

• It's imposed on the profit when you buy stocks and later sell them at a higher price.
• With the major shareholder threshold lowered from 1 billion to 500 million won, more people will be subject to this tax.
• Major shareholders face higher tax rates than regular investors.

📕 Tax Reform

Tax reform means policies that change the existing tax system.

• This includes tax rate adjustments, creating new tax categories, or abolishing existing ones.
• It's determined based on the government's fiscal goals and economic policy direction.
• Tax reform plans for the following year are usually announced at the end of each year.

3️⃣ Principles and Economic Outlook

✅ Background and Necessity of Tax Increase Policy

• Let's analyze the background behind the Lee Jae-myung government's tax increase and the fiscal situation.

  • First, resolving chronic fiscal deficits is urgent. Korea's national debt reached 54.6% of GDP by the end of 2024 and continues to increase. Large-scale fiscal spending for COVID-19 response and economic stimulus caused fiscal deficits to surge, making tax revenue expansion inevitable to fill this gap. With rapid aging, welfare spending continues to grow, so strengthening the tax base is necessary for sustainable fiscal management. The OECD average tax burden rate is 34.1% while Korea's is 28.4%, suggesting room for tax increases.

  • Second, securing funding is needed to implement the Lee Jae-myung government's key promises. Executing major promises like introducing basic income, expanding national health insurance, and increasing youth housing support requires tens of trillions of won annually. The existing budget structure cannot handle such large-scale policies, making new revenue sources essential. Since income redistribution to resolve social inequality is a policy goal, strengthening taxation on high-income groups and large corporations can also secure political legitimacy.

  • Third, it's necessary to recover tax revenue lost due to the Yoon Seok-yeol government's tax reduction policies. The previous government lowered corporate tax and securities transaction tax to stimulate the economy, but the expected investment expansion and economic growth effects were limited. Instead, only tax revenue decreased, worsening fiscal conditions. The Lee Jae-myung government criticizes these policies as "failed trickle-down policies" and argues that restoring tax rates is a normalization measure.

• Tax increase policy has symbolic meaning showing the government's economic philosophy and fiscal policy direction, not just simple tax rate increases.

✅ Impact of Tax Reform on Economy and Markets

• Let's analyze how corporate tax and securities transaction tax increases will affect companies and stock markets.

  • First, companies' after-tax profits may decrease, reducing investment capacity. A 2.5 percentage point increase in corporate tax rates will significantly increase the actual tax burden for large corporations. For example, a large company with 1 trillion won in annual profit must pay an additional 25 billion won in taxes. This directly affects company cash flow and may reduce facility investment or R&D investment. Companies with low profitability may face management difficulties due to increased tax burdens. However, most large corporations have sufficient cash reserves and are not expected to be severely impacted in the short term.

  • Second, concerns are raised about reduced trading and decreased foreign investment in stock markets. A 0.05 percentage point increase in securities transaction tax will increase stock trading costs, potentially reducing trading volume, especially for short-term trading. Institutional investors who engage in high-frequency trading will face considerable trading cost burdens. The strengthened major shareholder threshold for stock capital gains tax will also increase burdens for large-volume investors. However, experts analyze that this level of tax rate increase won't deal a decisive blow to stock markets.

  • Third, increased tax revenue and improved fiscal health may positively impact the economy in the medium to long term. Improved government fiscal conditions can strengthen economic response capabilities and create domestic demand stimulus effects through social infrastructure investment and welfare expansion. If income redistribution policies are effective, middle-class and working-class consumption capacity may increase, positively affecting the overall economy. However, for these effects to appear, efficient and productive use of funds secured through tax increases must be ensured.

• The economic effects of tax reform have dual aspects of short-term burden increases and medium to long-term economic stabilization, making policy design and implementation very important.

✅ Future Outlook and Challenges

• Let's examine the success conditions for this tax reform and expected future challenges.

  • First, forming social consensus on additional tax increases is an important challenge. While this measure has a "restoration" character of returning tax rates lowered during the Yoon Seok-yeol administration, more substantial tax increases may be needed in the future. More funding than the currently planned 35 trillion won is needed to implement government promises and expand welfare. However, public tax resistance is expected to be significant. Therefore, increasing tax use transparency and providing benefits that citizens can feel are important for securing tax legitimacy.

  • Second, institutional improvements are needed to prevent tax avoidance and enhance tax equity. Simply raising tax rates alone cannot achieve substantial tax revenue increase effects. Blocking various tax avoidance methods by large corporations and high-income groups and resolving tax blind spots may be more important. Institutional supplements are particularly needed to prevent tax evasion using overseas tax havens and tax avoidance through complex financial products. Sophisticated policy design is also required to secure overall tax revenue without increasing tax burdens on small businesses and ordinary citizens.

  • Third, comprehensive economic policy packages linked to tax reform must be supported. Tax increases alone may harm economic vitality, so other policies that can offset this must be pursued together. For example, expanding tax benefits that promote corporate investment or reducing cost burdens through regulatory improvements can be implemented in parallel. It's also important to focus secured tax revenue on securing future growth engines and social infrastructure investment to enhance the economy's long-term competitiveness. Above all, clear roadmaps and performance indicators for tax increase policies must be presented to enhance policy predictability.

• For this tax reform to succeed, comprehensive improvement of the tax system and building a social consensus foundation are essential, beyond simple tax rate adjustments.

4️⃣ In Conclusion

The Lee Jae-myung government's first tax reform is a symbolic measure clearly showing that Korea's fiscal policy has shifted to a "tax increase trend." The plan to restore corporate tax and securities transaction tax that were lowered during the Yoon Seok-yeol administration and strengthen stock capital gains tax standards to secure 35 trillion won in additional revenue over five years means a clear policy direction change.

The biggest significance of this measure is clearly presenting the goal of "fiscal health recovery." Given chronic fiscal deficits, increasing welfare demands, and the need to implement the Lee Jae-myung government's key promises, expanding the tax base was inevitable. Considering Korea's relatively low tax burden rate compared to OECD averages, this measure can be seen as a normalization process.

However, there are concerning points. Corporate tax rate increases may reduce companies' investment capacity, and securities transaction tax increases may shrink stock market trading. Particularly, criticism about lack of policy consistency needs attention. Tax policy greatly affects long-term decision-making by companies and investors, so predictable and consistent policy management is important.

More importantly, how the secured tax revenue is used matters. Rather than just filling fiscal deficits, it should be effectively used to secure future growth engines and resolve social inequality. If government promises like basic income, health insurance expansion, and youth housing support actually contribute to improving citizens' lives, public acceptance of tax increases will also improve.

More substantial tax reforms are likely to follow. This measure alone cannot secure all the funds the government needs. Therefore, forming social consensus, enhancing tax equity, and composing comprehensive economic policy packages will become more important.

Ultimately, the success of this tax reform depends on whether it can actually achieve economic growth and social development through secured funds, beyond simple tax revenue securing. While the burden of tax increases is real, if it can create a better society, it can also gain public support.