The government’s ‘2026 Tax Reform Proposal’ has entered a full review process just four days after its announcement. As cuts to Individual Savings Account (ISA) benefits and controversy over the effectiveness of the ‘Stock Price Suppression Prevention Law’ sparked fierce backlash from investors and young people, President Lee Jae-myung personally ordered a re-examination. This marks an unusual situation where the government’s tax reform proposal has been revised after announcement for the second consecutive year, following last year’s withdrawal of stricter major shareholder criteria for listed stock capital gains tax.<\/p>\n
According to political circles and relevant ministries on the 9th, President Lee ordered a full review of the ISA reform plan and stock price suppression prevention measures during a situation assessment meeting with aides on the 7th. Regarding the ISA reform plan in particular, he is reported to have strongly rebuked officials, asking, “Why did you do it that way without even preparing properly?”<\/p>\n
At the center of the controversy are two policies contained in the tax reform proposal announced by South Korea’s Ministry of Economy and Finance on the 3rd: the reduction of existing ISA benefits and the poorly designed Stock Price Suppression Prevention Law.<\/p>\n
ISA Benefit Cuts Face Criticism of ‘Forcing Domestic Stock Investment’<\/p>\n
The government presented two goals\u2014revitalizing the domestic stock market and increasing national wealth\u2014by creating a ‘Productive Finance ISA’ that can only invest in so-called ‘domestic’ assets such as domestic stocks, domestic equity funds, and the National Growth Fund. However, in the process, core benefits of the existing ISA were significantly reduced, drawing public outrage.<\/p>\n
The biggest controversy is the contract period limitation. The existing ISA allowed virtually indefinite extensions after a mandatory three-year holding period, enabling ultra-long-term tax deferral and compounding effects. However, the reform plan limits the maturity of general ISAs to a maximum of five years. Since taxes must be settled and re-subscription is required at each maturity, the long-term tax-saving effect is disrupted. This also applies retroactively to existing subscribers.<\/p>\n
The abolition of the annual contribution limit carryover system is also subject to criticism. Previously, unused contribution limits from one year could be carried over to the next year, but under the reform plan, unused limits are forfeited. This prevents young people or self-employed individuals with irregular incomes from employing strategies to maximize tax savings by making lump-sum contributions when they have a windfall.<\/p>\n
Furthermore, the Productive Finance ISA even restricts investment in overseas index exchange-traded funds (ETFs) such as the S&P 500 and Nasdaq 100. Criticism has poured in from investors questioning whether the government is essentially forcing domestic stock investment by reducing existing ISA benefits. The recent extreme volatility in South Korea’s domestic stock market, which has heightened concerns about long-term investment, has further fueled negative public sentiment.<\/p>\n
Representative Ahn Cheol-soo of the People Power Party strongly criticized the plan on social media, calling it “a toxic clause that plunders retail investor accounts” and “a regressive reform that pushes all citizens into ‘mindless domestic stock investment.'”<\/p>\n
Stock Price Suppression Prevention Law Significantly Weakened from Original Bill\u2026 “Loopholes Have Grown Larger”<\/p>\n
The ‘Stock Price Suppression Prevention Law’ (amendment to the Inheritance Tax and Gift Tax Act), introduced to prevent majority shareholders from artificially lowering corporate stock prices to reduce inheritance and gift tax burdens, has also become embroiled in controversy over its effectiveness. Critics point out that the government’s bill applies much more complex and looser requirements than the original bill proposed in the National Assembly, making regulatory avoidance easier.<\/p>\n
The government’s bill targets companies whose price-to-book ratio (PBR) falls within the bottom 25% (KOSPI) or 10% (KOSDAQ) of their industry for 12 out of the last 13 half-year periods, or companies whose market capitalization has fallen by more than 30% compared to the average market cap over the past three years due to dual listings or exchangeable bond issuances within the past year. Subsequently, if the National Tax Service’s Evaluation Deliberation Committee determines through deliberation that artificial stock price suppression has occurred, the tax base is recalculated.<\/p>\n
However, this represents a significant retreat from the original bill proposed by Representative Lee So-young of the Democratic Party of Korea last year. Representative Lee’s bill was a simple and clear method that set a floor of 80% of net asset value when evaluating inherited or gifted property for listed companies with a PBR below 0.8 times. In contrast, the government’s bill excludes companies from application if they escape the low PBR range for just two out of 13 half-year periods. This means majority shareholders can circumvent regulations by temporarily boosting stock prices at specific times through increased dividends or share buybacks.<\/p>\n
In fact, according to estimates by the Korea Corporate Governance Forum based on the government’s bill criteria, only about 130 companies\u201487 on the KOSPI and 43 on the KOSDAQ\u2014would be subject to the law. This is one-tenth of the approximately 1,300 companies targeted by Representative Lee’s original bill.<\/p>\n
The taxation method also has significant loopholes. Under the government’s bill, if stock price suppression is recognized, the tax base is set at the higher of 130% of the average stock price for two months before and after the valuation date, or the average stock price over the past six months to six years and six months, with a 30% surcharge applied. However, if stock prices have been kept low for an extended period, even a 30% surcharge may not reach normal stock price levels, making it difficult to completely block the tax-saving effect.<\/p>\n
The requirement to go through the National Tax Service’s deliberation process is also criticized for undermining legal stability. Determining specific criteria through deliberation rather than stipulating them by law may violate the clarity principle of constitutional tax legalism, and there is a high possibility of subsequent legal disputes, including constitutional complaints from taxpayers.<\/p>\n
Second Consecutive Year of ‘Tax Reform Fiasco’\u2026 Damage to Government Policy Credibility<\/p>\n
This tax reform controversy follows a similar pattern from last year, the first year of the Lee Jae-myung administration. At that time, the government announced a plan to significantly strengthen the major shareholder criteria for listed stock capital gains tax from a market capitalization of 5 billion won (approximately $3.5 million) per stock to 1 billion won (approximately $706,000), but faced concerns that year-end selling by ‘big players’ could shake the stock market. In particular, criticism poured in that it directly contradicted the government’s emphasized ‘money move’ policy toward the stock market. Ultimately, President Lee stepped back, saying “there is no need to be stubborn,” and the plan was withdrawn.<\/p>\n
This year, as the unprecedented situation of the president personally ordering a full review just four days after the announcement repeats itself, significant damage to the government’s policy design capability and credibility is expected. Even within the ruling Democratic Party of Korea, differences between the party and government are emerging, with Representative Lee So-young openly opposing the government’s bill, which significantly weakened her original proposal. The opposition party is raising its voice in criticism, calling it “rushed state affairs.”<\/p>\n
Meanwhile, real estate taxation has also emerged as another ‘powder keg.’ During the legislative notice period for the Comprehensive Real Estate Tax Act amendment and the Income Tax Act amendment converting the long-term holding special deduction to a long-term residence income deduction, 2,488 and 1,632 comments were received, respectively. In particular, there was strong opposition from non-resident single-homeowners facing significantly increased tax burdens. The government plans to recognize unavoidable reasons such as education, job changes, illness, and overseas stays as residence periods for up to three years, but citizens are demanding that exceptions also include relocation for grandparents’ childcare or family caregiving, and periods of remodeling construction.<\/p>\n
Political circles and the financial investment industry view it as highly likely that President Lee’s review order will effectively nullify the policy of reducing existing ISA benefits. With the ruling party also clearly opposing the reduction of existing ISA benefits, attention is focused on what revised plan the government will present.<\/p>\n","protected":false},"excerpt":{"rendered":"The government’s ‘2026 Tax Reform Proposal’ has entered a full review process just four days after its announcement.…\n","protected":false},"author":2,"featured_media":113545,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[1148,57677,31,43273,146,8797,12040,191,2322,57678,57681,57285,33,58390],"class_list":["post-113544","post","type-post","status-publish","format-standard","has-post-thumbnail","category-south-korea","tag-democratic-party-of-korea","tag-individual-savings-account-isa","tag-korea","tag-korea-corporate-governance-forum","tag-lee-jae-myung","tag-ministry-of-economy-and-finance","tag-national-tax-service","tag-people-power-party","tag-president-lee-jae-myung","tag-productive-finance-isa","tag-representative-ahn-cheol-soo","tag-representative-lee-so-young","tag-south-korea","tag-stock-price-suppression-prevention-law"],"_links":{"self":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/113544","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/comments?post=113544"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/posts\/113544\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media\/113545"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/media?parent=113544"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/categories?post=113544"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/korea\/wp-json\/wp\/v2\/tags?post=113544"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}