🚨 Major Stockholder Capital Gains Tax Threshold Drastically Lowered
Today Korean Economic News for Beginners | 2025.08.12
0️⃣ From 5 Billion to 1 Billion Won, Expanding Tax Base 5-Fold, Securities Transaction Tax Also Increased
📌 "Stock Market Activation Effect Insufficient" Judgment Leads to Tax Benefit Withdrawal, Investor Backlash and Market Shock Inevitable
💬 The government announced a tax reform plan that drastically lowers the threshold for major stockholder capital gains tax from the current 5 billion won to 1 billion won. At the same time, the securities transaction tax rate will be raised from 0.15% to 0.20%. The Ministry of Economy and Finance stated, "The stock market activation policies so far have not achieved the expected effects," and "We will normalize the tax system for revenue securing and tax equity improvement." However, immediately after the announcement, the KOSPI plunged 2%, showing market shock, and opposition voices saying "it's premature" have emerged even within the ruling party, suggesting turbulence in the National Assembly processing.
1️⃣ Easy to Understand
The government has decided to significantly increase taxes on stocks. Specifically, they want to collect more taxes from people who own many stocks, and they've drastically lowered the threshold, meaning the number of people who must pay taxes will increase fivefold.
First, let me explain what a 'major stockholder' means. A major stockholder is someone who owns a lot of shares in one company. Until now, you had to own more than 5 billion won worth of one stock to be classified as a major stockholder, but from now on, owning just over 1 billion won will make you a major stockholder.
When you become a major stockholder, you must pay taxes on the money you make from selling stocks. For example, if you bought Samsung Electronics stock worth 1 billion won and sold it for 1.5 billion won, you would have to pay taxes on the 500 million won profit. Until now, only people who owned more than 5 billion won worth of stocks paid this tax, but now people who own more than 1 billion won worth will also have to pay.
Additionally, the 'securities transaction tax' that you pay every time you buy and sell stocks will also increase. Currently, you pay 0.15% of the transaction amount, but in the future, you'll have to pay 0.20%. If you buy 10 million won worth of stocks, you currently pay 15,000 won, but you'll have to pay 20,000 won in the future.
The reason the government made this decision is because they judged that "We reduced taxes to activate the stock market, but it had no significant effect." Since stock prices didn't rise much and trading volume didn't increase, they decided to withdraw the tax benefits to help national finances.
However, investors are strongly opposed. There's particular concern that massive selling could pour out at the end of the year to avoid taxes. People who own just over 1 billion won worth of stocks could sell some at year-end to lower their portfolio value below 1 billion won, thus avoiding being classified as major stockholders and escaping taxes.
Ultimately, this tax reform is a means of securing revenue for the government, but it comes as an increased burden for investors and is expected to significantly impact the stock market.
2️⃣ Economic Terms
📕 Major Stockholder Capital Gains Tax
Major stockholder capital gains tax is a tax imposed on the profits earned by 'major stockholders' who hold more than a certain amount of a specific stock when they sell it.
- Currently, you must hold more than 5 billion won of one stock to be classified as a major stockholder, but the reform plan lowers this to 1 billion won.
- Tax rates of 20-25% are applied depending on the holding period, while general investors who are not major stockholders are exempt from capital gains tax.
- As the threshold is lowered, more people become subject to taxation, increasing tax revenue but negatively affecting investment sentiment.
📕 Securities Transaction Tax
Securities transaction tax is a tax imposed at a certain rate on the transaction amount when buying and selling securities such as stocks and bonds.
- Currently, 0.15% is imposed on stock transactions, but it will be raised to 0.20%.
- Since it's imposed on both buying and selling, it effectively increases from 0.30% to 0.40%.
- It's imposed on all investors regardless of transaction size, leading to increased trading costs.
📕 Financial Investment Income Tax
Financial investment income tax is a system that taxes annual net profits from financial investments such as stocks and bonds.
- It's a method of taxing all investors' annual net profits regardless of whether they are major stockholders.
- Implementation is currently postponed, but it could potentially replace major stockholder capital gains tax in the long term.
- Plans are being considered to protect small investors by applying basic deductions of 20 million won or 50 million won annually.
📕 Tax Equity
Tax equity is a tax principle that people with the same economic ability should pay the same taxes.
- Currently, only major stockholders pay capital gains tax while general investors are exempt, creating equity controversy.
- Most overseas countries tax all trading profits regardless of investment size.
- The government stated that this reform will reduce tax blind spots and improve equity.
3️⃣ Principles and Economic Outlook
✅ Background and Government Logic Behind Tax Reform
Let's examine the background and logic behind the government's decision to strengthen stock-related taxes.
First, the assessment that stock market activation policies so far have not achieved expected effects. The government has implemented various policies to activate the stock market since 2021, including raising the major stockholder capital gains tax threshold from 3 billion won to 5 billion won and lowering the securities transaction tax from 0.25% to 0.15%. However, the KOSPI has continuously declined since its peak of 3,300 in 2021 and is currently moving sideways around 2,500, and average daily trading volume has not increased significantly. The government explained that it decided to change policy direction, saying "Tax benefits did not lead to stock price increases or trading activation."
Second, the increased need for revenue securing also became a background for the reform. Fiscal pressure is growing due to increased welfare spending from low birth rates and aging, and decreased tax revenue from economic slowdown. Particularly, with the sharp decline in real estate transactions, comprehensive real estate tax and capital gains tax revenues have decreased significantly, making alternative revenue sources urgent. The Ministry of Economy and Finance projected that "This reform can secure more than 1 trillion won in additional annual revenue." It's estimated that strengthening major stockholder criteria will generate about 700 billion won and raising securities transaction tax about 400 billion won in increased revenue.
Third, improving tax equity is also presented as an important justification. Currently, there's an irrationality where tax burden differs based on holding size even for the same stock investment. A person holding 4.9 billion won worth of stocks pays no tax, but someone holding 5.1 billion won worth must pay high capital gains tax rates. The government emphasized that "By lowering the major stockholder threshold, we will reduce tax blind spots and improve tax equity." They also added that "Major overseas countries tax all trading profits regardless of investment size, so we should also align with international standards."
The government's tax reform has justifications for revenue securing and equity improvement, but considerable shock and side effects on the market are also expected.
✅ Market Impact and Investor Response
Let's analyze the specific impact that tax strengthening will have on the stock market and investors.
First, concerns about stock price decline pressure from massive year-end selling volume. Investors who currently hold more than 1 billion won of one stock are likely to sell some shares at year-end to avoid becoming major stockholders. Particularly, investors holding just slightly over 1 billion won can escape major stockholder status with just small sales, so such movements are expected to concentrate. The securities industry is concerned that "The change in major stockholder criteria could pour out more than 1 trillion won in selling volume at year-end." This could lead to stock price declines, potentially harming general investors as well.
Second, investment attractiveness may decline due to increased trading costs. Raising securities transaction tax increases the costs investors must bear when trading stocks. When buying and selling 100 million won worth of stocks, you currently pay 300,000 won in transaction tax, but after the reform, you'll have to pay 400,000 won. This will be a considerable burden especially for short-term traders. Also, as Korea's stock market transaction tax rate becomes higher than other countries, the possibility of foreign investor exodus is being raised. This is because relative attractiveness compared to competing markets like Singapore or Hong Kong may decline.
Third, changes in investment strategies will be inevitable. As the major stockholder threshold is lowered, many investors face the situation of having to adjust their portfolios. Investors who concentrated on one stock are likely to increase diversified investment across multiple stocks. Also, methods like establishing corporations for investment instead of individual names, or distributing holdings under family names are expected to increase. Some may also move funds to overseas stock markets. These changes could lead to decreased liquidity in the domestic stock market, which is concerning.
Tax strengthening is expected to cause short-term market instability and bring long-term changes in investment patterns.
✅ Future Outlook and Alternative Approaches
Let's examine the future processing of the tax reform plan and more reasonable alternatives.
First, considerable turbulence is expected in the National Assembly processing. Even within the ruling party, opposition voices saying "the timing is inappropriate" and "market shock should be considered" are emerging, so it seems difficult for the government plan to pass as is. Particularly, there are many criticisms that lowering the major stockholder threshold to 1 billion won is "too drastic a change." The opposition party strongly opposes, saying it "blocks ordinary people's investment means" and "reduces capital market competitiveness." Eventually, it's likely to be adjusted by compromising the major stockholder threshold to around 3 billion won or delaying the implementation timing.
Second, a comprehensive approach linked to financial investment income tax introduction is needed. Experts point out that it would be better to introduce financial investment income tax early and tax all investors fairly rather than strengthening major stockholder capital gains tax. Introducing the currently postponed financial investment income tax with appropriate basic deductions could improve tax equity while minimizing market shock. Also, gradually lowering securities transaction tax while securing revenue through financial investment income tax to unify the tax system aligns with international trends. Countries like Singapore and the UK are enhancing capital market competitiveness by lowering transaction taxes and taxing capital gains.
Third, long-term investment incentives and pension savings activation should be implemented together. Rather than simply increasing taxes, it's important to design the tax system to encourage long-term investment. For example, we could consider lowering tax rates for stocks held for more than 3 years, or expanding tax benefits for investments through pension accounts. Also, it's necessary to support ordinary people's long-term asset formation by increasing limits for Individual Savings Accounts (ISA) or pension savings. Approaching this way could achieve both revenue securing and capital market development simultaneously.
Successful tax reform requires minimizing market shock, phased implementation, and comprehensive approach.
4️⃣ In Conclusion
The government's strengthening of major stockholder capital gains tax thresholds and raising securities transaction tax has justifications for revenue securing and tax equity, but it has many problems in timing and method. Particularly, there are concerns about it being pushed hastily without fully considering the shock and side effects it will have on the market.
Drastically lowering the major stockholder threshold from 5 billion won to 1 billion won is too sudden a change. This is expected to inevitably cause side effects such as massive year-end selling, stock price declines, and shrinking investment sentiment. Also, if trading costs increase due to securities transaction tax increases, market liquidity will fall and foreign investor exodus is also concerning.
The bigger problem is the absence of consistent policy philosophy. Having expanded tax benefits for stock market activation just a few years ago, then strengthening them again for lack of effectiveness reduces policy credibility. From investors' perspective, it becomes difficult to predict government policies, making it hard to establish long-term investment plans.
A more desirable direction would be to introduce financial investment income tax early to tax all investors fairly while providing incentives for long-term investment. This way, tax equity can be improved while minimizing market shock. Also, securities transaction tax should be gradually lowered while strengthening capital gains taxation to unify the tax system.
The government should fully collect opinions from the market and investors during the National Assembly deliberation process to revise the reform plan. Particularly, it would be advisable to compromise the major stockholder threshold to around 3 billion won and implement it gradually with sufficient preparation time.
Ultimately, successful tax reform requires a comprehensive approach that balances revenue securing with market development and investor protection. We must not make the mistake of being obsessed only with short-term revenue securing and damaging the long-term competitiveness of the capital market.
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