According to Bloomberg, South Korea has announced a series of proposed tax benefits aimed at stimulating its economy and boosting stock market performance. The measures include a reduction in one of the world's highest inheritance taxes and extended support for chipmakers. These proposals come as the country faces challenges from an aging population and declining consumption rates.
President Yoon Suk-yeol's administration has identified poor corporate governance and high inheritance taxes as factors contributing to the underperformance of South Korea's stock market compared to international counterparts. In response, the government has launched a Corporate Value-up initiative to address these issues. The South Korean equities market, valued at $1.9 trillion, has seen a significant increase in retail investors since the COVID-19 pandemic, with their numbers rising from 6 million in 2019 to 14 million in 2023, representing nearly 30% of the population.
The government also plans to extend tax breaks for key technology sectors, including semiconductors, for an additional three years. Additionally, planned taxes on cryptocurrency holdings will be postponed for another two years. These measures are part of broader financial reforms, although not all have been well-received by foreign investors. For instance, South Korea has extended its ban on short selling until March 2025, a move initially implemented in November 2023 to curb illicit trading practices.
In a bid to further stimulate the economy, the government has reiterated its intention to scrap plans for a capital gains tax on financial investment income. This proposal has faced opposition in parliament, where the Democratic Party, led by Yoon's 2022 election opponent, holds a majority following the April election. The latest tax proposals also include incentives for couples getting married and easing tax burdens for employers who support workers with children, addressing the country's low fertility rate.
The proposed tax cuts are expected to reduce government revenue by approximately 4.4 trillion won ($3.2 billion) over five years. The Finance Ministry stated that these proposals would be submitted to parliament after receiving formal endorsement at a cabinet meeting scheduled for late August.
