Amid the government's and the ruling party's announcement to revert the stock transfer tax threshold for major shareholders from 5 billion won to 1 billion won, Jin Sung-jun, Chairperson of the Democratic Party of Korea's Policy Committee, noted that even if this standard is strengthened, its impact on the stock market will not be significant. Chairperson Jin made this claim based on a report published by the Korea Capital Market Institute in 2020.
However, the report in question actually contained details stating that expanding the scope of major shareholders subject to the transfer tax could lead to unnecessary volatility in the stock market and exacerbate taxation inefficiencies. There are concerns that Chairperson Jin may have misinterpreted the expert analysis or distorted the original content by quoting only parts of the report.
On the 28th, Chairperson Jin claimed on his social media (SNS) that 'the stock transfer tax imposition criteria for major shareholders should be restored to their original state,' while referring to the results of an analysis of the KOSPI and KOSDAQ markets conducted by the Korea Capital Market Institute over a decade from 2010 to 2020. He referenced the report's statement that 'while the patterns of buying and selling have changed significantly, it is difficult to conclude that a clear trend in stock prices has emerged,' analyzing that 'the stock market will not see a significant fluctuation simply because the tax criteria change.'
The report quoted by Chairperson Jin is titled 'Analysis of Stock Trading Behaviors to Avoid Major Shareholder Designation and Implications for the Stock Transfer Tax System,' written by Hwang Se-woon, Senior Researcher at the Korea Capital Market Institute, in April 2020. It contains the results of an analysis of the monthly trading behaviors of individual investors from January 2010 to January 2020.
Contrary to Chairperson Jin's claims, the report's key takeaway is that individual investors have been observed selling stocks every December to avoid being designated as major shareholders and then buying them back in January of the following year. This behavior was particularly pronounced in the KOSDAQ market, where individual investors had a higher buying ratio from January to November, but turned to net selling in December.
Especially at the times when the criteria for major shareholders were expanded, the selling pressure was greater. Individual investors' cumulative net selling in December of 2012, 2017, and 2019 exceeded 3 trillion won.
Even after the analysis period of the report, individual investors continued the pattern of selling in December and buying back in January of the following year. In December 2021, they net sold 1.153 trillion won worth of stocks in the KOSDAQ market, followed by a net purchase of 2.816 trillion won in January 2022. They also recorded net sales of 207 billion won and net purchases of 479 billion won in December 2022 and January 2023, respectively.
This trend changed when the Yoon Suk-yeol administration adjusted the criteria for the major shareholders' transfer tax to 5 billion won per stock. In December 2023, individual investors net purchased 218 billion won worth of stocks in the KOSDAQ market and showed a buying advantage of 1.617 trillion won in January.
Chairperson Jin also mentioned a part of the report stating, 'Although personal trading behaviors show significant differentiation between January and December, they are presumed not to have a major impact on stock price trends.' This implies that due to the multiplicity of factors determining stock prices, achieving statistical significance solely from individual trading is difficult. The report also notes that 'in January, when individuals tend to show stronger buying sentiment, they achieve, on average, higher returns than in December.'
Above all, the report contains multiple references criticizing the expansion of the major shareholders' transfer tax targets. 'The method of classifying major shareholders based on stock holding value rather than equity percentage is a unique approach that is hard to find in similar cases abroad.' 'Encouraging stock trades to avoid major shareholder designation could lead to issues degrading the efficiency of tax administration.' 'Strengthening the transfer tax on listed stocks due to expanded criteria for major shareholders may cause unnecessary volatility in stock trading,' are some of the representative comments.
The report concluded that, considering the side effects of expanding the major shareholders' transfer tax scope, it might be better to define the tax base comprehensively while allowing exemptions for small transfer gains at a lower tax rate.
Concerns are growing that if the threshold for the major shareholders' transfer tax is lowered back to 1 billion won, a sell-off may occur in the stock market at year-end. However, it is expected that the ruling party will push forward with strengthening the major shareholders' transfer tax criteria citing the normalization of 'tax cuts for the wealthy.' On the same day, the government and the ruling party held a consultation meeting at the National Assembly regarding the '2025 tax reform plan' and agreed to revert the major shareholders' transfer tax threshold from 5 billion won to 1 billion won.