2030 Generation’s Influence Sparks Debate Over Tax Reform in South Korea

Amid the complete prohibition of short selling in domestic stock markets such as KOSPI and KOSDAQ until the first half of next year, attention is drawn to the possibility of voices demanding additional tax reform targeting the 2030 generation’s voting sentiment emerging from the political realm. However, government agencies like the Ministry of Strategy and Finance are reluctant.

According to industry sources on the 7th, financial authorities have decided on a ‘Short Selling Prohibition Measure in the Securities Market,’ which bans short selling for all listed stocks from the day before until the first half of next year.

Short-selling bans have been temporarily implemented whenever the stock market has significantly fluctuated, such as during the 2008 global financial crisis, the 2011 European fiscal crisis, and the outbreak of the COVID-19 situation in 2020. This is the fourth time.

However, this is the first time a short-selling ban has been implemented despite no economic crisis. This is why there are criticisms that, even though the government puts forward the pretext of restoring market confidence, it is essentially a populist policy conscious of next year’s general elections in April.

In response, the possibility of additional tax reforms, which are popular among young voters in their 20s and 30s, being pushed forward is being raised. The abolition of the securities transaction tax is a prime example. The government has decided to reduce the securities transaction tax rate to 0.23% in 2022, 0.20% in 2023, 0.18% in 2024, and 0.15% in 2025 while postponing the implementation of the financial investment income tax from the original 2023 to 2025.

It is difficult to lower the securities transaction tax rate further as it includes a 0.15% rural and fisheries special tax. As of this year, when buying and selling KOSPI-listed stocks, 0.20% of the transaction amount is paid as tax, with the securities transaction tax of 0.05% and the rural special tax of 0.15% added. For the KOSDAQ market, only the securities transaction tax of 0.20% is applied without the rural special tax. From 2025, the KOSDAQ securities transaction tax rate will be adjusted to ‘0%’, but the rural special tax will continue to be applied in the case of KOSPI.

The ruling and opposition parties argue that the securities transaction tax should be abolished as the financial investment income tax has been introduced. They say that it does not fit the global trend due to concerns about double taxation. Advanced countries such as the United States, Germany, and Japan have already abolished the securities transaction tax, and Taiwan (0.15%), Hong Kong (0.13%), Thailand (0.1%), and China (0.05%) also have lower rates than Korea by 0.05~0.1 percentage points.

Hwang Se-woon, a senior researcher at the Capital Market Research Institute, said, “I think it is reasonable to go in the direction of abolishing the securities transaction tax to expand liquidity in the stock market.”

The government is cautious. A Ministry of Finance official said, “Even if the securities transaction tax is ultimately 0%, the rural special tax portion remains,” and explained, “If it is completely abolished, the source of the rural special tax will decrease, making it difficult to carry out support projects properly.”

Along with the securities transaction tax, the issue of taxing virtual assets is also attracting attention. Initially, from January of this year, if the income from virtual asset transactions such as Bitcoin exceeds 2.5 million won (approx. $2,121), income tax would be imposed. Still, it was postponed for two years and changed to aggregate annual gains and losses from transfer and lease portions after January 2025 during the following year’s comprehensive income tax declaration period.

This is not the first time that the taxation of virtual asset transactions has been postponed. The Moon Jae-in government also intended to implement taxation from October 2021 but waited for it and ultimately decided to implement it in 2025.

This is why there are views that it cannot be ruled out that the political realm may join forces to postpone the timing of taxation further. An industry insider said, “There was a precedent for postponing the taxation of income from virtual asset transactions to win votes ahead of last year’s presidential election so that a similar scenario could emerge this time as well.”