FSS chief calls for scrapping of proposed financial investment income tax

Financial Supervisory Service (FSS) Governor Lee Bok-hyun speaks during a press briefing held at the headquarters of the FSS in Seoul, Friday. Yonhap

Financial Supervisory Service (FSS) Governor Lee Bok-hyun once again reiterated the need to scrap the introduction of the financial investment income tax, which is slated to be implemented early next year.

According to the FSS on Sunday, the head of the state-run financial regulator warned that the implementation of the tax would trigger investors’ short-term trading on the Korean stock market, instead of long-term investment, while deepening the preference of investors for overseas stock markets further than domestic stocks.

“If the financial investment income tax is to be implemented as scheduled, domestic investors will have the incentive to sell domestic stocks that have not yielded returns yet or sell funds before the arrival of maturity, in order to realize losses to avoid taxation. In addition, investors are more likely to opt for investments with a certain return over investments involving risks,” Lee told reporters at the headquarters of the FSS on Friday, explaining that these anticipated behaviors by investors would deteriorate local stock market conditions by allowing capital outflow.

Lee went on to stress that the introduction of the financial investment income tax fails to differentiate between investments that entail risk and those without risk.

“If we impose the same taxation on investments that entail higher risks as those bearing much lower risks, it would ultimately reduce investments in the risky capital that needs continuous money inflows,” the FSS chief warned.

Lee acknowledged that he understands the underlying principle of the introduction of the tax, which is “evenhandedly taxing income wherever it arises.”

However, he also stressed that it is important to distinguish the nature of investments when implementing such a tax.

“There has been a tradition of allowing reduced taxation or even tax exemptions, as the expected return from investments, which is very much subject to both sides of fluctuations in nature, comes from the acceptance of potential losses incurred alongside profits gained,” Lee said.

He underscored that while he respects efforts to design the financial investment income tax reasonably, it’s still necessary to reassess whether in-depth considerations have been made regarding various relevant factors.

He also emphasized that he thinks it is a cowardly act to simply postpone the implementation of the taxation, saying that only in-depth discussions, rather than simply delaying the implementation of the tax until later due to the challenges faced at present, would solve the real underlying issues.

The financial investment income tax aims to impose taxes on those who earn over 50 million won ($36,101) in income from financial investment products like stocks at a rate of 20 percent (25 percent for incomes 추천 exceeding 300 million won). Originally adopted during the Moon Jae-in administration, the taxation was scheduled to be implemented from the start of last year. However, due to concerns over a sluggish stock market, both ruling and opposition parties agreed to postpone its implementation until 2025.

Without further action, the taxation is set to be implemented from next year. The Yoon administration and the ruling party insist on abolishing the taxation, citing concerns that it would cause a massive outflow of funds from the Korean stock market, while the main opposition Democratic Party of Korea argues that it should be implemented as planned.

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