South Korea should remove levy on stock trade even at risking reduced tax revenue to promote more investment in the stock market, the country’s top financial regulator chief said Tuesday.
Choi Jong-ku, chairman of the Financial Services Commission (FSC), responding to questions during a parliamentary hearing said taxing stock trade even when the investment incurs losses on top of higher income tax on profits raises a double taxation issue.
If the removal of the trade levy helps to stimulate stock investment, it can more than offset the cutback in tax revenue, he said, adding that he would embark on discussions with tax authorities.
The news failed to uplift the Korean markets.
On Wednesday, the Kospi finished 0.52 percent lower at 2,078.69 and the Kosdaq 1.33 percent lower at 682.37 in Seoul.
The Korean government briefly scrapped the tax in 1971, but revived it in 1978.
Tax is collected for 0.15 percent of a trade turnover on a Kospi share and another 0.15 percent in special excise for rural development to come to total 0.3 percent levy. A Kosdaq share is charged with 0.3 percent for its turnover. Registered tax payment for stock trade increased 8 percent on year to 4.7 trillion won ($4.2 billion) in 2017.
Choi’s comment comes as the Korean market recently bore bigger retreat than other peers in Asia and in the emerging category.
The main Kospi plummeted about 14 percent in October alone as foreign investors dumped a net 4.5 trillion won shares. The tech-heavy Kosdaq also slid nearly 20 percent, wiping out about 261.4 trillion won in market cap. The government has announced it would take necessary measures to prop up the country’s stock markets.
Taxes on stock investment should be levied according to the income investors earn, not trade, Choi said.
The government recently lowered the bar for becoming “major” shareholders. Starting April 2021, an investor with a holding of a single stock worth 300 million won in market capitalization will be considered a “major shareholder”, meaning that more investors will be subject to stock transfer income tax on top of stock trading tax.
By Kim Je-lim and Lee Ha-yeon
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