Concerns growing over end of the year stock selling spree due to shareholder qualification rule changes

22-Sep-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

Market concerns are growing over a possible market plunge at the end of the year, especially among small and mid-sized cap listed companies, if the government pushes ahead with its plan to lower the bar to be considered a major shareholder.

According to country’s current tax laws, a major shareholder is a person or entity that holds more than one billion won ($860,00) in a given company’s shares.

But the government said earlier this year that it would lower the definition from one billion won to 300 million won from 2021.

If an investor owns more than 300 million won worth of a company’s stock at the end of 2020, they will be subject to pay capital gains tax of 22 percent to 27.5 percent from next April, whenever they earn profits by selling the shares.

Market insiders have criticised the government’s move, saying that the new requirement would induce a massive sell of local stocks, especially toward the end of this year, possibly prompting a market plunge.

Critics also point out that not only is the new 300 million won bar too encompassing given the size of the Korean economy, but also the fact that it will be applied to the aggregated amount of stocks owned by direct family members, including spouses, parents and children, is unreasonable.

This was the main criticism made in an online petition on the official website of Cheong Wa Dae early this month, which gained 13,566 people’s signatures as of 4 p.m. Friday.

“It is against the Constitution for the major shareholder standard to be set at 300 million won and applied to the aggregated amount of shares owned by grandparents, parents, spouses, children and grandchildren. In the past, the aggregated calculation for a large family when levying real estate tax was found to be unconstitutional. It is reasonable that the capital gains tax of a major shareholder should be levied based on individual ownership,” the petition stated.

According to the bourse operator, the Korea Exchange (KRX), individual investors net purchased 43.5 trillion won worth of local stocks on the KOSPI and 12.3 trillion won worth on the Kosdaq from January to mid-September this year; in total, the net buying of retail investors reaches 56 trillion won, while foreign investors net sold 28.94 trillion won.

“Given that individual investors net purchased 56 trillion won worth of shares this year, a war over selling stocks at the end of the year to avoid being categorised as a major shareholder will be inevitable,” said Lee Kyung-soo, analyst at Hana Financial Investment.

In late July, Eun Sung-soo, the head of the Financial Services Commission (FSC) also warned of the negative impact of the revised requirement, when he spoke at a National Assembly committee meeting.

However, the finance ministry seems to be firm on its plan for it to take effect later this year.

“The government has delayed the imposition of capital gains tax on all retail investors to 2023; the changed rule on the requirement of a major shareholder should also be delayed to that year to avoid unnecessary instability on the market,” an unnamed insider said.


Category: Korea

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