Public Backlash Grows as Investors Suffer Losses After Closing ISA Accounts Amid Policy Flip-Flop

The government's plan to scale back tax benefits for Individual Savings Accounts (ISAs), followed by a sudden decision to reconsider the policy from scratch due to mounting backlash, has left investors in deep confusion.

Some investors who trusted the government's initial announcement and terminated their existing ISA accounts are now voicing frustration, saying they have lost even their tax-exempt benefits.

Major securities firms and banks have been flooded with inquiries regarding the termination and re-enrollment of ISA accounts.

Previously, the tax reform package announced by the government on August 3 included measures to partially reduce tax incentives for ISAs.

Currently, once the 3-year mandatory subscription period passes, account holders can continuously extend the maturity while receiving tax exemptions and deferred taxation. However, the revision sought to limit the maximum maturity of ISAs to 5 years, allowing only up to a 2-year extension after the initial 3-year term.

The regulation was set to apply to accounts newly joined or extended starting next year, while excluding existing subscribers who had already set long-term maturities.

The plan also decided to abolish the carryover of annual contribution limits.

While investors currently can roll over unused amounts to the next year if they fail to fill the 20 million won annual limit, the proposed change would cause unused limits to expire at the end of each year.

As investor protests against the benefit cuts escalated, President Lee Jae-myung ordered a full reconsideration of the reform proposal, shifting the situation once again.

The problem is that some investors had already terminated their ISAs in the meantime.

To avoid the 5-year maturity cap taking effect next year, they closed their existing accounts in advance, aiming to open new accounts within this year and secure long-term maturities.

ISAs require meeting a minimum 3-year mandatory subscription period to receive tax benefits, meaning that premature termination before the 3 years can result in losing tax-exempt privileges that would have otherwise been granted.

Under an ISA, gains and losses from investment products can be offset against each other. Tax exemptions apply up to 2 million won for the general type and up to 4 million won for the low-income type, and a separate taxation rate of 9.9 percent is applied to amounts exceeding those thresholds.

Particularly for overseas index ETFs listed domestically, general accounts can impose a 15.4 percent tax on trading profits, making ISAs highly popular for their tax-saving advantages.

With the ISA reform plan sent back to the drawing board, investor confusion is expected to persist until the final direction of the tax code revision is finalized.

Reported by Kim Minjeong | Video by Seo Byeong-wook | Graphics by Sumin Lee | Produced by SBS Digital News
※ Please note: This article was translated by AI and may contain errors.