Gov't will push to scrap capital gains tax for stock trading, Yoon says

The government will push to abolish a planned capital gains tax on stocks and step up measures to prevent illegal short selling in a bid to address the so-called Korea discount.

President Yoon Suk Yeol gives a speech at the Korea Exchange in western Seoul on Tuesday, the first trading day of 2024. [YONHAP]

The government will push to abolish a planned capital gains tax on stocks and step up measures to prevent illegal short selling in a bid to address the so-called Korea discount.

President Yoon Suk Yeol said Tuesday the government will push ahead with the scrap of the proposed capital gains tax, which was scheduled to take effect in 2025. Under the proposed plan, which was introduced by the former Moon Jae-in administration, retail investors would owe 20 to 25 percent on gains from local stock trading above 50 million won ($38,000).

Yoon said that the government would “resolve the Korea discount” during his term, through the “abolition of regulations that do not meet global standards,” at the office of the Korea Exchange in Yeouido, western Seoul, the first such appearance for an incumbent president.

Korea discount refers to the overall underpricing of Korean stocks compared to those of peers outside the country, which is considered a product of weak shareholder returns and geopolitical risks in the region.

“In Korea, there are many international corporations that meet global competitiveness, but the stock market is highly undervalued,” Yoon added.

“Securities are the ground for the coexistence of people and corporations and are a ladder of opportunity for people to accumulate wealth. Financial investment needs to be activated in order to prevent the adhesion of [income] classes and to raise social dynamics.”

The government has been easing regulations on investors ahead of the upcoming general elections in April.

It raised the capital gains tax threshold for shareholders from 1 billion won to 5 billion won, effective in 2024, to mitigate a year-end selling spree. Korea imposes a capital-gains tax ranging from 20 to 25 percent on major shareholders, which is levied based on their holdings at the end of each year.

Yoon also pledged to introduce a thorough computerized system to prevent illegal short selling.

“The government strictly punished global investment banks that illegally shorted stocks to prevent the spread of its damage,” Yoon said. The new system, he said, will aim to “avoid the disgrace of Korea’s stock market being [described as] a playground for foreign and institutional investors.”

Korea’s financial regulators slapped BNP Paribas, HSBC and executing brokerage firms with a combined 26.52 billion won in fines for illegal short selling last month, the heaviest penalty for the practice.

The companies were fined for violating the Capital Markets Act by committing naked short selling.

The financial authorities banned the short selling of all stocks last year through June after the global banks were found to have committed naked short selling, which is illegal in Korea.

BY JIN MIN-JI [jin.minji@joongang.co.kr]