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SEOUL: South Korean stocks plunged on Monday, wiping $140 billion off the value of the KOSPI index, and could accelerate the government’s efforts to scrap a tax on income from stock trading amid concerns the stock market is dominated by retail investors.
President Yoon Seok-yeol has been trying to win approval from the main opposition party for his plan to scrap the tax, which would levy a minimum 20 percent tax on income from stock and bond trading from 2025 if annual capital gains exceed 50 million won ($36,325).
“It is absolutely ridiculous to impose any new taxes at a time like this,” said Oh Jeong-min, a 42-year-old retail investor who lost nearly 10% of his domestic and U.S. stock portfolio on Monday.
“We see once again how vulnerable the Korean market is when the U.S. sneezes,” Oh said, referring to how a rise in the U.S. unemployment rate to a nearly three-year high has spooked markets.
Financial regulators worry that the proposed capital gains tax could deter many of the 14 million local retail investors, who have preferred global stocks such as Nvidia and Tesla over domestic investments since the outbreak, from entering the $1.7 trillion domestic stock market.
This week, a blog run by Jin Sung-joon, a lawmaker from the opposition Democratic Party who supports the tax bill, was inundated with critical comments from retail investors, who account for about two-thirds of domestic trading.
One post read: “The stock market crash (on Monday) exposed the extremely weak supply and demand situation in the domestic market. The financial investment tax will sound the alarm for the stock market. Do you want to destroy the market in this way?”
Democratic lawmakers argue the proposed tax is fair and would only affect about 1% of 14 million retail investors.
Jin Liqun said at a policy meeting on May 10 that Germany and Japan have successfully imposed such taxes, which have helped stabilize the financial investment systems of the two countries.
However, the Democratic Party canceled a public debate on the tax that was scheduled for Wednesday after the KOSPI index plunged 8.8% on Monday, according to the office of lawmaker Lim Kwang-hyun, who supports the tax.
Yoon’s office issued a statement on Wednesday, again urging the parliament to speed up discussions on the repeal bill because “it is not desirable that the bill remain pending when the majority of the public agrees to abolish the tax.”
Han Dong-hoon, leader of South Korea’s People Power Party, said in a televised speech on Tuesday that sticking with the tax cut plan was like “creating a perfect storm and then walking into it.”
The tax will take effect in 2025 unless the opposition Democratic Bloc, which holds a majority in parliament, withdraws or amends the bill.
“Given the collapse we’ve seen, the opposition may agree to delay the tax,” said Kevin Choi, head of ANDA Asset Management in Seoul.
“They should acknowledge that stock investment is a channel to increase people’s wealth at a time when domestic stock markets are lagging behind global stock markets.”
So far this year, the Kospi has fallen 3.4%, underperforming the S&P 500 and Nikkei, which have risen 10% and 5%, respectively.
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