[Editorial] Make a decision

The dispute over the introduction of the financial investment income tax has intensified after the main opposition Democratic Party of Korea failed to work out an agreement about its legislative schedule on Friday.

The new tax scheme is scheduled to be implemented from January next year, a plan that puts local investors on edge since it could have a sizable impact on their asset management as well as the domestic financial market performances.

The consensus is that the tax scheme, which has been delayed by two years until 2025, should be either delayed again or abolished altogether as part of efforts to inject fresh energy into the poorly performing Korean stock market.

Under the financial investment income tax, those who have capital gains of over 50 million won from stock investment will be charged a 20 percent tax. For gains of more than 300 million won in capital gains, the tax rate will rise to 25 percent.

Experts and investors alike complain that such tax scheme will be an additional impediment to financial investment in the local markets, where growth momentum is badly needed. There are proponents for the new tax scheme, arguing that it will streamline the complex tax systems managed by different authorities.

President Yoon Suk Yeol already pledged to abolish the tax scheme early this year, and the ruling People Power Party is also in favor of Yoon’s idea, a position that appeals to some 14 million stock investors.

The problem is that the ruling party cannot push ahead with its plan since the Democratic Party holds a majority at the National Assembly and holds an ambiguous stance over the issue.

The Democratic Party has long espoused a set of policies that promise to offer greater welfare benefits in return for heavier or new taxes. But new taxes tend to generate disputes. The comprehensive real estate holding tax, introduced in 2005, is a case in point. This tax scheme was supposed to affect only the wealthy with high-value property ownership, but ended up hitting many of the middle class due to a sharp rise in property prices during the Moon Jae-in administration, which greatly expanded the application for the tax.

The Yoon administration softened the comprehensive real estate holding tax by revising details and rules. This was positively accepted by those hit by “punitive” taxes, particularly retirees who own a single house and do not have steady income sources to pay for soaring property taxes.

Against this backdrop, it is no surprise that the Democratic Party has been dithering over the financial investment income tax. It was the Democratic Party that led the passage of the related bill in 2020.

On Friday, the main opposition party held a public forum and discussed various options over the new tax scheme. But Democratic Party lawmakers failed to reach an agreement even after heated debates, and eventually passed the final decision to the party leadership.

The party leadership is now expected to agree to delay the new tax scheme’s implementation, but a change in stance cannot be completely ruled out. Democratic Party leader Lee Jae-myung revealed his position in July that the implementation of the financial investment income tax could be delayed, mindful of the votes from stock investors. Before Lee made the related remarks, hard-line party members, including chief policymaker Jin Sung-joon, had pushed for the implementation of the tax scheme in January.

Within the Democratic Party, some lawmakers argue that pros and cons of the new tax scheme should be carefully weighed since the domestic financial market is now in bad shape.

As for the new tax scheme, it is time for the Democratic Party to make a decision, regardless of whether it will go for a delay or implementation as scheduled. After all, what investors hate most is uncertainty stemming from policymakers’ indecision.