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By Heejin Kim and Jihoon Lee
SEOUL (Reuters) – South Korean President Lee Jae Myung said on Thursday he did not see a need to follow through on a plan to revise the country’s capital gains taxes intended to boost tax revenue from stock investors and that he would leave it up to parliament to decide.
Lee told a press conference he now considered it unnecessary to lower the threshold defining “large shareholders” subject to paying capital gains tax. The planned tax change has caused a public backlash among many South Korean investors.
“If it causes damage to the stock market, I don’t think it is necessary to lower the threshold to 1 billion (won) from 5 billion,” Lee said, reaffirming the administration’s will to pursue reforms to revitalise the market.
He said he would leave the decision to parliament, currently reviewing the proposal, as both the ruling Democratic Party and the main opposition People Power Party agree that the threshold should remain unchanged.
The benchmark KOSPI stock index erased early gains of as much as 0.9% and turned lower after Lee’s comments. On Wednesday, the index hit a record high of 3,317.77 points as expectations grew among investors that Lee would scrap the revision plan at the press conference.
“The KOSPI fell after the president announced his stance, with shares of securities firms turning sharply lower, as investors sold on the news,” said Park Seong-cheol, an analyst at Yuanta Securities.
In July, Lee’s administration proposed in its first annual tax code revisions to raise taxes on stock transactions to the 2023 level of 0.2% from 0.15% currently and lower the threshold for “large shareholders” subject to capital gains taxes to 1 billion won ($719,953), from 5 billion now.
That move sparked investor doubts over Lee’s pledge to boost the domestic stock market, prompting the government and the ruling Democratic Party to reassess the scheme.
In the domestic stock market, heavy selling by retail investors near the end of each year intended to avoid the large shareholder threshold is often cited by analysts as a factor contributing to downward pressure on the benchmark index.
Lee, who took office on June 4, pledged in his election campaign market reforms under his “KOSPI 5,000” initiative to resolve the so-called “Korea Discount” – the undervaluation of companies compared with global peers due to factors such as opaque governance structures and low dividend payouts.
Major reforms passed by Lee’s administration include amending the Commercial Act to expand the duty of board members to protect shareholder interests and setting up a task force to win an upgrade to developed market status from a global index provider, with improvements to foreign access.($1 = 1,388.9800 won)
(Reporting by Heejin Kim and Jihoon Lee; Editing by Ed Davies)
