South Korea abandons capital gains tax reform after retail backlash

South Korea has abandoned the capital gains tax plan, reducing it from 5 billion won to 1 billion won after facing a backlash from retail investors. Some lawmakers also warned that the plan would risk undermining South Korea’s stock market. 

The Ministry of Economy and Finance revealed the tax plan as part of a broader reform to boost the South Korean market amid U.S tariff pressure. The plan was criticized, citing that more investors will be caught in higher tax brackets, restrict trading, and trigger major selloffs. 

Kospi surges following President Lee’s reversal of the capital gains tax 

President Lee made remarks after his first 100 days in office, noting that revitalizing the market is a central pillar of his administration’s economic agenda. He acknowledged that insisting on tightening the capital gains tax would hinder his agenda; therefore, he discontinued the process. He revealed that the National Assembly would make the final decision, confirming that both ruling parties are on board. 

The proposal received more than 140,000 signed petitions from the public, with groups such as the Korean Stockholders Alliance warning of a possible civil unrest. Jung Eui-junh, head of the Korea Stockholders Alliance, said that the Kospi index cannot co-exist with the capital gains tax of 1 billion won. 

The Kospi index rose 5.63% throughout the past week and recorded a 0.3% gain today at 3,406.20 points. According to Goldman Sachs, the weekly inflow was over 4 trillion won, the largest since 2013. The YTD stands at 41.93%, which is primarily contributed to by technology sector stocks. 

Hyosung Kwon, a Bloomberg Economist, revealed that the reversal exposed weaknesses in Korea’s large shareholder tax rules. He noted that the U-turn on the stock capital gains tax reflects more than wavering policy consistency, revealing flaws in the hefty shareholder gains tax. He added that the retail investors feared a significant selloff. 

President Lee proposed tax hikes to raise funds for campaign pledges and curb the gaps in a budget affected by weak growth. Scrapping off the tax on capital gains would cause a revenue reduction to the tune of 200-300 billion won, but some of the country officials noted that it was a more negligible risk to take on compared to the potential market disruption it would have caused.

South Korea aligns stock and crypto tax policies 

The decision has triggered pressure to find alternative sources of revenue to cover the deficit. President Lee reaffirmed the nation’s plans to increase the tax on stock transactions from 0.15% to 0.2%. He also urged the National Pension Service to increase its stake in diversified domestic investments rather than focusing on international ones. 

The Korean government advanced its corporate reforms with the recent amendment to the Commercial Act, which sought to advance the director’s fiduciary duties and introduce cumulative voting for large listed firms. President Lee confirmed that further reforms would follow, targeting unfair executives and certain controlling shareholders to protect minority investors and hence strengthen the Korean financial system. 

The plan to scrap capital gains tax follows a recent shift in tax policies affecting the crypto business in the country. Cryptopolitan reported that on July 9, 2025, the National Tax Service (NTS) clarified that residents receiving virtual assets from overseas as labour income from foreign companies must report and pay the comprehensive income tax. The NTS had cited the provisions under the Income Tax Act from Article 127 on withholding obligations and Article 70 on final tax declarations.

The Ministry of SMEs and Startups also proposed a legislative amendment to scrap the virtual asset-related industries from the list of restricted sectors under the Special Act on the Development of Venture Enterprises. The country had prevented businesses in crypto trading and brokerage from venture company status, limiting their access to tax breaks, financing, and procurement benefits.

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