🚨 Major Shareholder Capital Gains Tax Controversy Heats Up
Today Korean Economic News for Beginners | 2025.08.04
0️⃣ Lowering Threshold to 1 Billion Won Raises Stock Price Concerns vs Limited Impact
📌 Sharp reduction in tax threshold causes investment sentiment concerns, government counters with past examples
💬 The government announced a plan to drastically lower the threshold for major shareholder capital gains tax from the current 5 billion won per stock to 1 billion won, sparking heated debate in the stock market. Investors and securities firms worry that major shareholders will rush to sell their stocks at year-end to avoid taxes, creating downward pressure on stock prices. The Democratic Party also mentioned the possibility of adjusting the threshold amount considering market concerns. However, the government argues that concerns are excessive, citing that past threshold changes in 2010 and 2016 did not significantly impact actual stock prices. With the financial investment income tax (capital gains tax for all investors) continuing to be delayed, questions about fairness in the current structure where only major shareholders pay capital gains tax are also being raised.
1️⃣ Easy to Understand
The stock market is buzzing because the rules for who has to pay taxes on stock profits are changing. The "major shareholder capital gains tax" threshold is being lowered, which means more people will have to pay taxes, and investors are worried this might cause people to sell their stocks early.
Let me first explain what major shareholder capital gains tax is. Usually, when regular people buy and sell stocks and make money, they don't have to pay taxes on those profits. But there's an exception for "major shareholders" who own a lot of one stock. When these big shareholders sell their stocks and make a profit, they have to pay capital gains tax.
Currently, only people who own 5 billion won or more of one stock are classified as major shareholders. For example, if someone owns 6 billion won worth of Samsung Electronics stock and sells it for 7 billion won, they have to pay tax on the 1 billion won profit they made. The tax rate is usually around 20-25%.
But now the government announced they want to lower this threshold from 5 billion won to 1 billion won. This means many more people will become major shareholders and have to pay capital gains tax. For example, someone who currently owns 1.5 billion won worth of Samsung Electronics stock doesn't pay tax now, but under the new rules, they would have to.
Investors are worried for a simple reason. They expect that people who don't want to pay taxes will sell their stocks early before the rules change. Especially at year-end, there could be a lot of selling since the new rules would apply from the next year.
But the government argues that similar things happened in the past, but it didn't really affect stock prices much. They claim that even when they changed the rules in 2010 and 2016, stock prices actually went up during those times.
In the end, we'll have to wait and see what the actual impact will be, but it's definitely affecting how investors feel right now.
2️⃣ Economic Terms
📕 Major Shareholder Capital Gains Tax
Major shareholder capital gains tax is a tax imposed on profits made by shareholders who own large amounts of stock when they sell their shares.
- Currently, shareholders who own 5 billion won or more per stock are classified as major shareholders and must pay capital gains tax.
- Tax rates are 20-25% depending on how long they held the stock, and 30% if held for less than one year.
- Regular individual investors don't pay tax on stock trading profits, which creates fairness issues.
📕 Financial Investment Income Tax
Financial investment income tax is a tax that would be imposed on all investors who make more than a certain amount of profit per year from stocks, funds, and other financial products.
- Originally planned to start in 2023, but has been continuously delayed due to concerns about market shock.
- Would apply a 20-25% tax rate on annual profits exceeding 50 million won (20 million won for major shareholders).
- If introduced, it would solve the current fairness problem where only major shareholders pay capital gains tax.
📕 Capital Gains Tax Rate
Capital gains tax rate is the percentage of tax applied to profits made from selling assets.
- For stocks, the tax rate varies depending on how long the stock was held.
- Held for 1 year or more: 20%, held for 2 years or more: 10% (limited to small company stocks)
- Held for less than 1 year: 30% high tax rate applies.
📕 Year-end Selling Phenomenon
Year-end selling phenomenon refers to concentrated stock selling in December for tax reasons.
- Commonly occurs when new tax rules will apply from the following year.
- Creates temporary downward pressure on stock prices, but usually recovers in a short time.
- Long-term investors often see this as a buying opportunity.
3️⃣ Principles and Economic Outlook
✅ Background and Purpose of Lowering Major Shareholder Threshold
Let's examine the reasons and policy intentions behind the government's plan to drastically lower the major shareholder capital gains tax threshold.
First, improving tax fairness is the biggest goal. Currently, individual stock investors in Korea don't pay taxes on their trading profits. However, the structure where only major shareholders pay capital gains tax has caused fairness controversies. There have been criticisms that it's unfair for small investors to be exempt from taxes just because they hold smaller amounts, especially when they can also make large profits. The government wants to improve fairness by lowering the threshold so more investors pay taxes.
Second, securing tax revenue to strengthen fiscal health is also an important reason. With the 5 billion won threshold, very few people actually paid capital gains tax. Less than 0.1% of all stock investors qualified as major shareholders. Lowering the threshold to 1 billion won would significantly increase the number of taxpayers, leading to higher tax revenue. The government seems to want to use this to fund welfare budgets and public investments.
Third, there's also an intention to discourage speculative trading in the stock market. Increased capital gains tax burden could encourage long-term investment rather than short-term trading. The 30% high tax rate for holdings of less than one year also serves this purpose. The government hopes this will make the stock market a place for healthy investment rather than gambling.
Lowering the major shareholder threshold reflects the government's goals of achieving tax justice and securing revenue, but the impact on the market must also be considered.
✅ Analysis of Actual Impact on Stock Market
Let's analyze the specific impact that changing the major shareholder capital gains tax threshold will have on the stock market, along with past examples.
First, looking at market reactions during past threshold changes, the shock wasn't as big as feared. In 2010, the threshold was raised from 1 billion to 5 billion won, and in 2016, a complex calculation method was introduced. Even then, there were concerns in the market, but overall market trends were more important. In 2010, the KOSPI rose 21% for the year, and in 2016 it also rose 3%. This shows that overall economic conditions and corporate performance have bigger impacts on stock prices than major shareholder capital gains tax.
Second, temporary year-end selling may occur, but its scale is expected to be limited. Those holding between 1 billion and 5 billion won would become new major shareholders, but not all of them will sell their stocks at year-end. Many are holding for long-term investment purposes or are willing to continue holding even if they have to pay taxes. They could also manage their tax burden by spreading out selling times or selling only portions of their holdings.
Third, it could actually have a positive impact on market stability in the long term. If capital gains tax burden reduces short-term trading and increases long-term investment, stock price volatility could decrease. There's also potential for establishing a healthy investment culture that focuses on corporate fundamentals rather than speculative trading. Most developed countries impose taxes on stock capital gains, but this hasn't hindered stock market development.
While there may be short-term volatility, it's likely to contribute to improving market health in the long term.
✅ Future Policy Direction and Market Response Strategies
Let's comprehensively examine the future direction of the major shareholder capital gains tax controversy and response strategies for investors.
First, adjustment discussions in political circles are expected to continue. Since the Democratic Party mentioned the possibility of adjusting the threshold amount considering market concerns, there will likely be additional discussions during parliamentary audits and budget deliberations. Possible scenarios being discussed include compromising on a threshold of 20-30 billion won instead of 1 billion won, or delaying the implementation timeline. There's also the possibility of reviewing the overall stock taxation system in connection with introducing the financial investment income tax.
Second, clarifying the relationship with financial investment income tax is a key task. If only major shareholder capital gains tax is strengthened while financial investment income tax continues to be delayed, another fairness problem arises. Fundamentally, creating a fair tax system for all investors is important, which requires social consensus on introducing financial investment income tax. The government needs to find ways to ensure fairness while minimizing market shock.
Third, investors need to establish strategies to prepare for tax system changes. Investors holding more than 1 billion won in stocks may need to consider portfolio adjustments taking tax burden into account. For example, they could diversify their holdings to keep each stock below 1 billion won, or distribute holdings under family members' names. However, it's better to approach this from a long-term investment perspective rather than excessive tax avoidance. They should also establish investment strategies keeping in mind the possibility of future financial investment income tax introduction.
While there may be short-term confusion due to policy changes, establishing a fair and transparent tax system will ultimately help market development.
4️⃣ In Conclusion
The controversy over lowering the major shareholder capital gains tax threshold reveals fundamental issues surrounding Korea's stock market taxation system. We face the difficult task of finding a balance between tax fairness and market stability.
The government's plan to lower the threshold has clear legitimacy. The current structure where only major shareholders pay capital gains tax has been controversial in terms of fairness, and actually very few people pay the tax. The criticism that the 5 billion won threshold was too high to have substantial taxation effects is also valid.
However, market participants' concerns cannot be ignored. The possibility of year-end selling pressure or weakened investment sentiment due to sudden threshold changes are factors that must be fully considered. Especially in the current situation with high economic uncertainty, minimizing additional market shock factors is important.
Looking at past cases, the actual impact of tax system changes wasn't as big as feared. Even during threshold changes in 2010 and 2016, the stock market moved according to overall economic trends, and tax system changes weren't decisive factors. This shows that stock markets are more influenced by corporate performance and economic fundamentals than tax systems.
What's more important is the long-term perspective. Most developed countries impose taxes on stock investment profits, but this hasn't hindered stock market development. Rather, fair tax systems have helped establish healthy investment cultures and mature markets.
The solution is gradual and predictable policy implementation. Market shock should be minimized by adjusting threshold amounts in stages or providing sufficient preparation time. At the same time, social discussion about introducing financial investment income tax should be activated to organize the overall stock taxation system consistently.
Ultimately, this controversy can be seen as growing pains in the process of Korea's stock market becoming more mature. We need to find reasonable solutions that all stakeholders can accept, focusing on long-term development direction rather than short-term confusion.
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