▲ An advertisement for a brokerage firm's Individual Savings Account (ISA) is displayed on a screen at a supermarket in Seoul on the 12th.
While gathering feedback following the legislative notice of its tax reform proposals, the government is considering making targeted adjustments to the annual contribution carryover and contract period of Individual Savings Accounts (ISAs).
Regarding real estate taxes, while various opinions are being heard, the government is expected to submit its original framework—including deduction methods and tax rates—to the National Assembly and leave in-depth discussions to parliament.
However, as exceptions for non-residents are matters stipulated by enforcement decrees that do not require parliamentary approval, they are expected to be refined by adding specific cases.
According to relevant authorities on Monday, August 17, the government is reviewing necessary modifications for key controversial issues in the tax reform package based on feedback raised during the legislative notice period.
In particular, strong consideration is being given to revising the abolition of the annual contribution carryover and the limits on contract periods for ISAs, which have drawn concentrated criticism from investors.
In the recent tax reform proposal, the government introduced a new productive finance ISA product while abolishing the annual contribution carryover and capping the contribution period at a maximum of 10 years.
At the same time, existing ISAs were also subjected to a ban on carryovers and a contribution period limit of five years.
This sparked criticism that such measures would disadvantage self-employed individuals and freelancers with fluctuating incomes, while diminishing long-term investment and compound interest effects.
Reflecting these concerns, the government is positively reviewing directions to allow contribution carryovers as before and to enable contract periods to be extended virtually indefinitely.
If implemented, these adjustments are expected to apply equally to both existing ISAs and the new productive finance ISAs.
However, productive finance ISAs will still differ from general ISAs in terms of total contribution limits and tax benefits.
Under the government proposal, the total contribution limit is 100 million won for general ISAs and 200 million won for productive finance ISAs, with the latter offering greater tax exemption benefits on investment returns.
In addition, requests to include overseas equity-type exchange-traded funds (ETFs) in the investment targets of productive finance ISAs are reportedly difficult to accommodate.
The government plans to maintain regulations limiting investment targets to domestic stocks, domestic equity funds, and national growth funds.
This is interpreted as taking into account that productive finance ISAs are aimed at revitalizing the domestic capital market, and that investors can simultaneously subscribe to both general and productive finance ISAs.
Regarding real estate taxes, opinions have been raised primarily concerning increased tax burdens, joint ownership by married couples, and exceptions for non-residents.
It is highly likely that the government will submit the revision bill to the National Assembly while maintaining the basic framework contained in its original proposal, such as deduction methods and tax rates for real estate taxes.
The intention is to address detailed contentious issues during the parliamentary deliberation process.
Amid a variety of views within the ruling Democratic Party, some Democratic Party lawmakers representing constituencies in the greater Seoul area have reportedly argued that the upper limit on tax increases should be maintained at 150% to ease the shock of rising comprehensive real estate holding taxes.
The government proposal decided to raise the tax burden ceiling from the current 150% to 200% to reflect the effect of higher comprehensive real estate tax rates.
For married couples with joint ownership, the government maintains its existing stance that taxpayers can choose the option most advantageous to them by weighing tax benefits and other factors.
This means that single-home households with joint spousal ownership can receive a basic comprehensive real estate tax deduction of 1.2 billion won (1.4 billion won under the revision), the same as single-name ownership, if they apply for the special taxation provisions for single-home households.
However, because exception conditions for non-residents can be determined via enforcement decrees, the government is considering adding some of the cases raised during the legislative notice period.
The government proposal includes provisions recognizing periods of non-residency of up to three years as residency periods when individuals relocate to other regions due to unavoidable reasons such as schooling, changes in employment, illness, transfer of school, staying abroad, or supporting parents, while also recognizing construction periods caused by redevelopment and reconstruction as residency periods.
As additional opinions continue to emerge regarding how far to recognize individual cases as exceptions—such as relocating regions to care for grandchildren or renting homes in prominent school districts—specific exception grounds may be added to the enforcement decree.
Measures to prevent stock price suppression are being reviewed as a partial supplement to the government's original proposal.
Along with this, the necessity of discussing these measures organically with amendments to the Commercial Act and the Capital Markets Act in the National Assembly has been raised.
The government is reportedly considering modifying and adding certain requirements, such as adjusting the scope of taxable targets or placing a cap to ensure that inheritance tax burdens do not exceed the inherited assets.
The government proposal stipulated conditions suspected of stock price suppression as cases where the price-to-book ratio (PBR) fell into the bottom 25% of KOSPI industries or bottom 10% of KOSDAQ for 12 cumulative semi-annual periods out of the latest 13, or where stock prices dropped by more than 30% compared to the three-year average accompanied by actions such as dual listings or the issuance of exchangeable bonds over the past year.
Under these conditions, the evaluation period would be expanded compared to before, applying a surcharge of at least 30%.
Markets and political circles have criticized that effectiveness could be low, as companies might evade regulations simply by managing their PBR during certain periods.
Critics point out that the criteria for the scope of taxation are too loose and the level of sanctions, such as surcharges, is weak.
In response, the government is leaning toward adjusting the scope of taxable targets.
A bill proposed by Democratic Party lawmaker Lee So-young and others stipulates that when stock prices form below 80% of net asset value (PBR of 0.8), inheritance taxes should be calculated using unlisted company valuation methods with a floor set at 80% of net asset value, rather than using actual stock prices.
However, opinions also suggest that rather than resolving the issue of stock price suppression solely through inheritance and gift tax valuation methods, it should be accompanied by efforts to protect shareholders and improve capital market systems through the Commercial Act or the Capital Markets Act.
An amendment to the Capital Markets Act proposed by Democratic Party lawmaker Kim Hyun-jung in March mandates listed companies with a PBR of less than 1 for two consecutive years to draft and publicize corporate value enhancement plans.
Another amendment to the Capital Markets Act proposed by lawmaker Kim in April requires public disclosures of an issuer's pros and cons opinions and directors' interests during tender offers, and mandates that matters having a significant impact on shareholder interests be included in major report filings.
While the government's anti-stock price suppression bill uses tax laws to block artificial undervaluation aimed at reducing inheritance and gift tax burdens, the proposed amendments to the Capital Markets Act can be viewed as complementary capital market measures ensuring that stock prices are fairly valued through corporate value enhancement and shareholder protection.
The government plans to gather feedback through the legislative notice period running until the 20th, discuss the revised proposal at the vice-ministerial and cabinet meetings, and then submit it to the National Assembly early next month.
An official from the Ministry of Finance and Economy said, "We plan to listen as broadly as possible to various voices and carefully review reasonable supplementary measures based on them so as to faithfully preserve the original purpose of the institutional reform."
(Photo: Yonhap News)
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