South Korea set to abolish financial investment gains tax: Yoon

South Korea plans to abolish capital gains taxes on financial investments to revitalize the lackluster domestic financial market and help individual investors grow their assets, President Yoon Suk Yeol said on Tuesday.

The country, Asia’s fourth-largest economy, will also strive to remove all unnecessary regulations on financial markets to tackle the so-called Korea discount in the local stock market, he said.

“South Korea has many large companies with global competitiveness. Nevertheless, its stock market is severely undervalued,” the president said during a ceremony marking the start of business in the new year at the Korea Exchange.

“During my term as president, I will do my best to abolish financial market regulations that are not aligned with global standards and reduce the Korea discount.”

Among other things, he said, his government will seek to abolish the financial investment gains tax set to be reintroduced in 2025.

The rule imposes a tax rate of 22-27.5%, including local taxes, on investors who make capital gains of more than 50 million won ($38,435) within a year of their investment in financial products such as stocks, bonds, funds and derivatives.

The revised regulation was supposed to be implemented in 2023 but was postponed by two years until 2025 in line with Yoon’s presidential campaign pledge and amid opposition from investors and financial market associations.

“We must change rules if they cause losses to innocent investors and distort the market,” Yoon said. “I’m willing to revise regulations if they spook investors and make them leave the market.”

The main bourse’s benchmark index Kospi closed up 0.6% at 2,669.8 on Tuesday, the first trading day of 2024.

AMENDMENT TO COMMERCIAL LAWS

President Yoon said he would also seek to amend commercial laws to ensure that the interests of minority shareholders are properly reflected in the decision-making processes of companies’ boards.

The president said that to help retail investors manage and build their assets more easily, the government plans to expand asset management programs such as individual savings accounts (ISA) with favorable tax benefits.

“The number of individual investors in our stock market has grown rapidly, exceeding 14 million last year. The stock market is a place for coexistence, where people and companies grow together. Also, it is a ladder of opportunity that supports people’s asset accumulation,” he said.

He said the government will build a “thorough” computer system so that the stock market can get rid of its stigma of being a “playground only for institutions and foreigners.”

Last month, the Financial Services Commission (FSC), Korea’s financial regulator, slapped a combined 26.52 billion won in fines on BNP Paribas SA, its Korean brokerage unit and HSBC Holdings plc for naked short-selling, a practice banned in the country.

In November, the FSC said it would completely ban short-selling in the domestic market until June 2024 in response to increasing use of the practice by hedge funds and other institutional investors.

“Last year, the government eased the capital gains tax standard for major shareholders to prevent retail investors' losses from heavy year-end share sales to meet tough regulations,” he said.

Yoon is the first sitting Korean president to attend a stock market opening ceremony at the start of the year.

The event was attended by more than a hundred government officials and financial market leaders, including Finance Minister Choi Sang-mok, FSC Chairman Kim Joo-hyun and Financial Supervisory Service Governor Lee Bok-hyun.

Write to Byung-Uk Do at dodo@hankyung.com

In-Soo Nam edited this article.