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| Finance Minister Hong Nam-ki, left, and Finance Services Commission Chairman Choi Jong-ku talk ahead of a policy meeting in Seoul, Jan. 17. The two agencies are at odds over stock trading taxes. Yonhap |
By Park Hyong-ki
Politicians and policymakers are again locked in a heated debate on whether to abolish the country's 0.3 percent tax imposed on KOSPI stock trading.
This comes as Financial Services Commission (FSC) Chairman Choi Jong-ku told reporters after holding a Jan. 16 meeting with fintech startups that talks regarding the issue will "start really soon."
This is because the ruling Democratic Party Chairman Lee Hae-chan and other lawmakers said it may be time to consider abolishing or lowering the rate in line with efforts to advance the capital market.
However, the finance ministry will not budge an inch to growing calls for the tax repeal.
"We are not considering abolishing the tax," it said in a Dec. 21 press statement.
Its position has remained the same since the late 1970s when the tax was reintroduced to keep short-term investors or speculators away. It got rid of the tax in the early 1970s. The ministry has always kept the rate even during financial crises.
Korea's rate is higher than China and Hong Kong, which both have a rate of 0.1 percent. Singapore has a 0.2 percent rate, and Taiwan has 0.1 percent. The United States, Japan and Germany do not impose taxes on stock trading, according to the Korea Economic Research Institute.
In a Jan. 19 written response to the ruling party, the finance ministry said it could "consider" abolishing the tax only after the country "further increases" capital gains taxes on stock trading.
"Since only very few face capital gains taxes, it would not be right to adjust the tax rate on stock transactions," it said in the response paper.
Even though the country is moving to expand the scope and level of the capital gains tax rate in phases by 2021, this will only affect the very few "big traders or investors."
If it adjusts the transaction tax without imposing capital gains taxes on all traders and investors, its tax revenue will decline in the long run, it added.
To be specific, it will not be able to collect more than 6 trillion won on average a year if it gets rid of the transaction tax.
Besides, the current system not only "helps block speculative trading," but also countries such as the U.K., France and Italy impose both transaction and capital gains taxes.
The minister reiterated that without the tax, the market faces higher volatility as foreign investors can come and leave here more freely.
The country imposes a 20 percent tax on investors who gained less than 3 million won through their shares worth over 1.5 billion won. It imposes a 25 percent tax on investors who gained more than 300 million won.
Industry sources say it may be difficult to abolish the tax amid growing social costs.
"Unless there is an alternative plan that can make up for the losses following the abolition of the tax, this issue will persist without any clear resolution," said a securities industry source.
