South Korea widens capital gains taxes for wealthy stock investors

SEOUL (Reuters) - South Korea on Thursday proposed expanding its capital gains taxes to include a larger number of affluent stock investors, in its push to reduce inequality by levying more from the wealthy and less from general share trading.

FILE PHOTO: Currency dealers walk past an electronic board showing the Korea Composite Stock Price Index (KOSPI) at a dealing room of a bank in Seoul, South Korea, March 13, 2020. REUTERS/Kim Hong-Ji

Starting 2023, taxes of up to 25% will be imposed on annual capital gains exceeding 20 million won ($16,627) for retail investors, finance minister Hong Nam-ki said in a policy meeting.

That would affect about 300,000 people, or the top 5% of all stock investors, in Asia’s fourth-largest economy, the finance ministry said in a statement.

It would also mark a significant expansion of current rules as capital gains taxes are only applied to large shareholders with stakes exceeding 1% or 1 billion won ($831,373) of listed stocks.

Currently, no retail investors of listed shares are subject to capital gains taxes unless they are classified as “large shareholders”.

About 95% of equity investors derive less than 20 million won in annual capital gains from financial investments. For the majority of these investors, taxes will now be lowered with transaction taxes cut to 0.15% for KOSPI-listed shares by 2023 from current 0.25%.

South Korea's benchmark KOSPI .KS11 fell 1.04% in early trade on Thursday, tracking broader global declines.

“This is bad news for retail investors but good news for foreign investors who hold roughly about one third of KOSPI and KOSDAQ shares combined, as they only pay transaction taxes,” said Lee Won, an analyst at Bookook Securities.

“The downside impact from the new capital gains taxes will be limited for now, as it doesn’t kick in immediately.”

The left-leaning government of President Moon Jae-in has been hiking taxes for wealthy property owners and larger conglomerates to address growing income inequality and rising welfare costs due to its rapidly ageing society.

The new taxes are subject to parliamentary approval.

President Moon’s ruling party secured 180 seats in the 300-member, single-chamber parliament following an election in April, which should help the government pass the laws in the National Assembly.

Institutional investors won’t be affected by the proposed revision in capital gains taxes as they are subject to corporate income tax.

Reporting by Cynthia Kim; Editing by Sam Holmes