The government said Wednesday that it will impose capital gains tax on wealthy stock investors starting 2023 as planned, with the minimum deductible amount raised to over double the initial figure, in a much-rushed move to contain fierce backlash from many retail investors.
Gains from transactions of listed shares will face a 20-percent tax on anything earned over 50 million won ($41,800), a figure revised from the previously set 20 million won announced June 25. The rate will be 25 percent if profits from stocks are over 300 million won.
The eased rule announced by the Ministry of Economy and Finance is part of a tax code revision for 2020, a comprehensive measure designed to help the country better overcome the virus-induced economic crisis and bolster equitable and just taxation.
Around 67.6 billion won in net tax revenue increase is forecasted, with the middle class and small- and medium-sized enterprises (SMEs) expecting to see over 1.7 trillion won in tax reduction whereas high earners and large conglomerates will see 1.8 trillion won increase. The revision will be approved by the Cabinet Aug. 25 following 20-day public notification before being submitted to the National Assembly in September.
Under the plan, some 16,000 people earning over 1 billion won a year will pay 45 percent of their income in taxes, 3 percent more from the current 42 percent, following the government’s plan to create a new income bracket for the highest earners.
The new bracket will be added to the current seven-tier system, under which the highest rate has been 42 percent for those earning over 500 million won in annual income. Some 900 billion won in tax revenue is expected from the new bracket.
The ministry said heavier tax on the top earners is needed given the already pronounced income disparity widening faster due to the longer-than-feared COVID-19 pandemic.
Ministry data show earned income of the bottom 20 percent dropped 3.3 percent in the first quarter of 2020, while that of the top 20 percent jumped 2.6 percent.
The income inequality ratio measured by earnings of the top 20 percent divided by the bottom 20 percent spiked to 5.41. The Jan.-March ratio is much higher than those of the three previous quarters that stood at a range of between 4.58 and 4.64, much lower than the 5.18 figure in the first quarter of 2019.
“The government decided to impose heavier tax on the top 0.05 percent of the workers deemed able to take the limited hike, judging that their lives have not been hit as hard as their vulnerable peers. The measure will strengthen social solidarity,” Deputy Prime Minister and Finance Minister Hong Nam-ki said during a briefing at Sejong Government Complex, Tuesday.
About 570,000 small businesses will have their tax reduced by a combined 480 billion won thanks to the government’s plan to expand the simplified tax filings or exemptions of value-added tax for the low-income earners hit by the pandemic.
The ceiling for the simplified process will be raised to make those making annual sales of less than 80 million eligible from the current 48 million won, reducing 280 billion won in government tax revenue to be in turn offered as a financial assistance of 1.17 million won per person to 230,000 people.
Some 200 billion won in tax will be exempt for 340,000 small business owners with annual sales of less than 48 million won.
Korean citizens ―- residents and non-residents ― and foreign nationals will be liable to pay capital gains tax for profit made from cryptocurrency transactions.
Gains made by non-residents and foreigners after Oct. 1 2021 will be subject to a tax rate of either up to 20 percent of difference between sell price and purchase price or a 10 percent of transfer price. Either amount ― whichever is lower ― must be paid on the 10th of every month. Exemptions will be granted to those eligible under certain related international treaties.
Koreans by contrast will have to pay 20 percent tax for gains made in a one-year period of over 2.5 million won. This means if an investor saw a gain of 4 million won a year, 300,000 won in capital gains tax will be incurred ― 20 percent of 1.5 million won.
Those who made gains must file income statements with the National Tax Service between May 1 and May 31. Gains made not only via local but also overseas crypto exchanges must be reported. Failure to report will result in an additional 20 percent in punitive taxes.
Lee Kyung-min(2020.07.22) South Korea to levy capital gains tax on stocks from 2023
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