SEOUL, August 03 (AJP) - A sweeping tax reform proposal from President Lee Jae Myung’s administration has sparked political infighting and market turmoil, raising doubts about its ability to reconcile its pro-growth rhetoric with investor sentiment.
Unveiled on July 31, the tax overhaul plan includes a controversial provision that would lower the threshold for shareholders subject to capital gains taxes from 5 billion won (about $3.9 million) per stock to 1 billion won ($770,000). It also calls for a hike in securities transaction tax rates and introduces a new separate dividend tax of up to 35 percent.
The market response was swift and severe.
On Aug. 1, the benchmark KOSPI index fell 126.03 points, or nearly 4 percent, closing at 3,119.41 — the largest single-day drop since early April. The sell-off ignited concerns that the government’s tax plan was undermining investor confidence and fueling volatility in already uncertain market conditions.
As of 1 p.m. Sunday, a petition opposing the change to the capital gains threshold garnered over 90,000 signatures on the National Assembly’s public petition platform.
At the heart of the criticism is what many see as a contradiction between President Lee’s campaign pledge to usher in a “KOSPI 5000” era and a tax policy that investors fear could deter market participation.
Facing mounting backlash, Democratic Party floor leader Rep. Kim Byung-ki attempted to calm tensions, acknowledging widespread unease.
“There are many concerns surrounding the tax reform proposal,” Kim said. “We will consider revising the 1 billion won threshold for large shareholders.”
The main opposition People Power Party moved quickly to capitalize on the turmoil.
In a statement on Sunday, senior spokesperson Park Sung-hoon accused the administration of precipitating a market collapse with what he called a reckless tax agenda.
“With this tax reform, the Lee Jae-myung government and the Democratic Party aimed to raise 35.6 trillion won in revenue, but in just one day, over 100 trillion won in market capitalization was wiped out,” he said.
Internal divisions within the ruling Democratic Party have also emerged. While some lawmakers defend the reform as fiscally responsible, others warn that it may jeopardize the stock market’s stability.
Rep. Jin Sung-joon, the party’s policy chief, defended the lower threshold, arguing that similar tax changes under previous administrations had little impact on market performance.
In a social media post, Jin noted that the capital gains tax threshold was gradually reduced from 100 billion won to 10 billion won under both the Park Geun-hye and Moon Jae-in administrations without major disruption.
“Ironically, when the Yoon Suk-yeol administration raised the threshold back to 5 billion won, stock prices continued to decline,” he wrote.
Jin framed the reform as a corrective measure, calling it essential to restoring fiscal balance.
“The priority must be rebuilding the revenue base eroded by three years of regressive tax cuts under the Yoon government,” he said, pointing to the proposed restoration of a 1 percent corporate tax rate, a 0.05 percent transaction tax, and the 1 billion won capital gains threshold as steps toward that goal.
But not all within the ruling party are on board.
Rep. Lee So-young publicly opposed the tax plan, arguing that it runs counter to the government’s stated goal of channeling capital from real estate into financial markets.
“This contradicts the policy direction the government has pursued until now,” she said in a Facebook post.
reporter
Candice Kim
candicekim1121@ajupress.com
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