The Democratic Party of Korea is pushing legislation to separate the taxation of dividends from general income for listed companies. The logic is to increase the incentive for major shareholders to distribute dividends while reducing the tax burden on individual investors to promote long-term investments. This aligns with the campaign promise of presidential candidate Lee Jae-myung to "expand shareholder returns." Within the party, this is expected to ignite another debate over "tax cuts for the ultra-rich" following the abolition of the financial investment income tax and the suspension of taxation on virtual assets.
On the 25th, Democratic Party lawmaker Lee So-young proposed an amendment to the Income Tax Act that applies a separate tax rate for listed corporations with a dividend payout ratio of 35% or higher. Lawmaker Lee stated, "We must increase the dividend payout ratio through bold incentives to revitalize the stock market."
The current law imposes a withholding tax of 15.4% (including local government tax) on dividends. If the sum of interest income and dividends exceeds 20 million won, it is combined with general income and subjected to a maximum progressive tax rate of 49.5%. There have been criticisms in the market that major shareholders and executives of listed companies avoid distributing dividends to escape high tax burdens or transfer wealth through the expansion of retained earnings.
The amendment applies the following tax rates: ▲15.4% for dividends below 20 million won, ▲22% for those exceeding 20 million won but less than 300 million won, and ▲27.5% for those exceeding 300 million won. Lawmaker Lee noted that while a decrease in general income tax revenue is inevitable, "there may be some decrease, but if corporations increase the dividend payout ratio, this can be offset by an increase in dividend income tax from foreign and individual investors."
◇Leading discussions on abolishing the financial investment tax, moving to Lee's presidential campaign.
The legislative movement of the Democratic Party emerged just three days after candidate Lee mentioned separating the taxation of dividends during a visit to the Korea Financial Investment Association on the 21st. During that meeting with heads of research centers from securities firms, candidate Lee discussed ways to resolve the Korea Discount (the undervaluation of the domestic stock market) and stated, "We need to accurately analyze whether the increase in dividends will justify a decrease in tax revenue," while also expressing agreement that "the taxation of dividends should be adjusted."
It is also noteworthy that lawmaker Lee, a member of the party's "Stock Market Activation Task Force," serves as the director general of the TV debate team for Lee Jae-myung's presidential campaign. He had backed candidate Lee's call for the abolition of the financial investment tax as part of the "anti-implementation team" during internal discussions last year.
◇Democrats characterize Yoon's government value-up policy as "tax cuts for the ultra-rich."
The separation of dividends taxation is part of the tax reform proposal that President Yoon Suk-yeol's administration pushed as part of its "stock market value-up" policy. The Democratic Party opposed it, referring to it as "tax cuts for the ultra-rich." Park Chan-dae, the floor leader, said during a press briefing in December last year, "The separation of dividends taxation is the culmination of tax cuts for the wealthy" and emphasized, "We cannot accept this under any circumstances." Lawmaker Ahn Do-gul, responsible for the fiscal proposals of candidate Lee's campaign, also stated around the same time that it is "tax cuts concentrating benefits on a very small number of stock holders, such as major shareholders and conglomerate heads."
However, as candidate Lee has recently accelerated his "rightward turn," the internal stance is also changing. During his tenure as party leader, candidate Lee appeared on an economic YouTube channel in February, stating, "Our country's dividend payout ratio is lower than that of China. Isn’t that too severe?" He added, "As stock prices rise, there are profits. We are currently investigating through simulation whether it is possible to offset the decrease in tax revenue, and if that is possible, we will consider discussing it."