🟡 Tax Reform Sparks Backlash Amid Market Plunge – Korean Investors Oppose Return to 10B KRW Major Shareholder Threshold

📅 August 2, 2025
✍️ Journalist: Jeong Hyejeong – JoongAng Ilbo

🧾 Summary

Amid a sharp decline in the Korean stock market, Democratic Party official Jin Sung-joon publicly defended the need to restore the ₩10 billion threshold for applying capital gains tax to major shareholders. The proposal is part of the 2025 tax reform package presented on July 31, which reverses the expansion under the Yoon Suk-yeol administration (which had raised the threshold to ₩50 billion) and seeks to reinstate the framework envisioned under President Moon Jae-in—though at the time, implementation was postponed due to similar public backlash.

Jin argued that previous reductions in the threshold—under the Park Geun-hye and Moon administrations—did not trigger substantial stock price drops, and that Yoon’s later relaxation failed to stabilize the market. However, citizen response was swift: a petition opposing the reform garnered over 76,000 signatures in less than 48 hours, channeling frustration among investors who feel their competitiveness is threatened compared to markets like the U.S.

Meanwhile, Democratic Party floor leader Kim Byung-ki suggested a possible review, revealing internal divisions. Jin responded that while the proposal is not final, he does not believe it is in danger of being overturned.

⚖️ Five Laws of Epistemic Integrity

✅ Truthfulness of Information – The article provides direct quotes, accurate chronology, and a faithful account of recent political events. 🟢 High

📎 Source Referencing – Includes public statements by Jin and Kim, data on the citizen petition, and the contents of the tax reform proposal. 🟢 High

🧭 Reliability & Accuracy – The sequence (reform → political response → citizen backlash) is factually correct. However, it omits deeper structural tax context, such as the lack of loss carryover mechanisms and the high compliance burden. 🟡 Moderate

⚖️ Contextual Judgment – While the article mentions the stock market drop, it does not explore macroeconomic consequences or capital flight risk, nor does it compare Korea’s tax structure to international models. 🟡 Moderate

🔍 Inference Traceability – Readers can infer tensions between fiscal recovery and market health, but the piece avoids long-term structural or symbolic projections. 🟡 Moderate

🧩 Shareholder Classifications in South Korea

In the KOSPI and KOSDAQ markets, shareholders fall into three broad categories based on ownership level, disclosure obligations, and tax treatment.

1. Ordinary shareholders (일반 주주)
   Typically hold less than 1% of a company’s stock and have no significant influence. They are exempt from capital gains tax on listed shares, except in special cases (e.g., non-listed stocks or special sales). They only pay a 15.4% tax on dividends and face no disclosure obligations with the Financial Services Commission (FSC).

2. Shareholders subject to reporting requirements (보고의무대상 주주)
   Those with a 5% or higher stake in a listed company must notify the FSC within five business days. Any subsequent change greater than 1% must also be reported. This regulation aims to prevent hostile takeovers or stealth accumulation. Regulatory and media scrutiny is significantly higher for this group.

3. Major shareholders (대주주)
   The crux of the current controversy. A shareholder is classified as a major shareholder if they hold ₩10 billion or more in stock of a single company, regardless of whether they have corporate control. This triggers capital gains tax liability on listed stocks, even if the shares are publicly traded.

   The tax rate is progressive: 20% on the first ₩300 million of gain, and 25% on any excess. However, Korea does not allow inter-asset loss offsets or carryforwards between fiscal years, unlike countries like the U.S. There is no automatic withholding; taxpayers must self-declare, increasing compliance costs and audit risk.

   This designation may also involve restricted trading windows (e.g., blackout periods), exclusion from state subsidy programs, and increased scrutiny—even without board representation or control.

💡 BBIU Implications

The ₩10 billion threshold is not merely a fiscal cutoff—it marks a symbolic boundary. Crossing it transforms an investor from a “participating citizen” into a “target of fiscal enforcement.” This shift in status functions more like punishment than regulation.

Internationally, Korea appears increasingly hostile to long-term domestic capital. In the U.S., capital gains taxes are more favorable for long-term holdings, with clear rules, loss offsetting, and automated withholding. Japan offers temporary exemptions to encourage capital retention. In contrast, Korea combines fiscal aggressiveness with a public narrative in which financial success is morally suspect.

The result is a symbolic criminalization of sophisticated domestic investors, who are treated as presumed evaders. This undermines not just tax competitiveness but also legal confidence—prompting capital flight to platforms like Fidelity, Schwab, or Interactive Brokers. While Korea does require offshore investment reporting (e.g., via KEB Hana Bank) beyond certain thresholds, foreign environments remain more predictable, less punitive, and symbolically neutral.

📉 Underlying Motives Behind the Reform (Three BBIU Hypotheses)

🎯 1. Concealed Fiscal Restoration under External Pressure (Structural Hypothesis)

The recent U.S.–Korea agreement commits Korea to $350 billion in direct investment and $100–150 billion in energy purchases—amounts nearing the total reserves of the Bank of Korea. To sustain this outflow without visibly increasing sovereign debt or triggering market fear, the Lee administration may be using this tax reform to rapidly broaden the domestic tax base over uncontrolled capital pools.

This would serve as a form of internal refinancing, simulating fiscal discipline before the IMF or credit agencies, while executing a large-scale transfer of industrial value to the U.S.

🔄 2. Pre-emptive Purge of Mid-Tier Investors Ahead of Institutional Market Consolidation

Another possibility is that this move is part of a broader strategy to reduce speculative domestic pressure and facilitate equity consolidation by conglomerates, state funds, or foreign institutions.

By deterring individuals with ₩10–50 billion in equity—sophisticated investors without corporate control—the state creates space for more stable, institutional capital to dominate. In this framework, the promise of a "strong market with dividends" still holds, but only for those who survive the purge.

🧩 3. Populist Symbolic Legitimization After Unequal U.S. Deal (Political Hypothesis)

Finally, this reform may serve as a gesture toward fiscal populist factions, who view major stockholders as a privileged elite that must be “disciplined.” In this sense, President Lee may be trying to offset the symbolic damage of the imbalanced U.S. trade deal with an internal narrative of fiscal justice.

The repeated phrase “restoring what Yoon destroyed” functions as ideological reaffirmation rather than a coherent capital market strategy. However, this approach directly contradicts Lee’s earlier rhetoric, which emphasized attracting capital, stabilizing the market, and protecting domestic investors. If not reversed or amended, this measure undermines that vision—and could trigger a symbolic collapse of Korea’s national equity market.