Transaction taxes are being cut to spur tradingThe transaction tax on the Kospi, Kosdaq and Konex exchanges will be lowered in June to jump-start the Korean equities markets.
Minister of Economy and Finance Hong Nam-ki said Friday in Washington that, starting June 3, the transaction tax will be lowered from 0.3 percent to 0.25 percent.
The transaction tax on the Konex will be lowered from 0.3 percent to 0.1 percent.
The Konex was opened in July 2013 to help small companies go public.
Hong was in Washington to attend the International Monetary Fund and World Bank’s spring meeting.
He estimated that the changes will likely cost the government 1.4 trillion won ($1.2 billion) in taxes collected from the stock exchange transactions. Annually, the government collects around 8.4 trillion won from the stock exchanges.
The finance minister also said the government will work on reforming laws so that the transaction taxes on unlisted stocks will be lowered from the current 0.5 percent to 0.45 percent starting next year around April.
The changes in the stock exchange transaction taxes are the first in 23 years. There has been growing pressure for a lower tax to breathe life into the markets. The ruling Democratic Party has even demanded the transaction tax be abolished.
The finance minister said the government will be able to handle the reduced tax collections. “The tax reduction will be at a level we will be able to bear,” Hong said.
The government is already expected to see a drop in collection after it announced Thursday an extension of fuel tax breaks for another four months until the end of August.
The cuts began on Nov. 6 last year with a 15 percent reduction on fuel taxes. The reduction will be shrunk to 7 percent starting May 7.
The Finance Ministry said it is extending the fuel tax cut as it has contributed to raising consumption as well as overall economic activities.
The Finance Minister, however, was cautious about raising diesel taxes as it could affect many small businesses including those that rely on trucks.
“While there are those who say diesel taxes need to be raised to solve the fine dust situation, we have to think about those small businesses and truck owners who live on small diesel vehicles,” Hong said. “Rather than raising diesel taxes, it is more effective to convince these owners to scrap their outdated diesel vehicles.”
He said the government will include measures to encourage people to trade in their outdated vehicles for environmentally friendly vehicles in a supplementary budget that will be proposed to the National Assembly later this month.
During a press meeting, the finance minister stressed the urgency of the supplementary budget.
“The pre-emptive measures against downward risks and countering fine dust pollution are urgent,” Hong said. “We have not changed our plan to submit the supplementary budget to the National Assembly by April 25.”
Before leaving for Washington, Hong said the supplementary budget would not be more than 7 trillion won.
If the National Assembly approves it, it would be the fourth consecutive year that a supplementary budget has been created and the third under the Moon Jae-in government.
Hong was cautious about the ending of the individual consumption tax break.
To boost domestic consumption and car sales, the government lowered the individual consumption tax from 5 percent to 3.5 percent in July 2018. That tax break was supposed to end in December, but it was extended for another six months.
“We still have time,” Hong said of the individual consumption tax. “We will make the decision on whether to end the individual consumption tax break as planned on June 30 or further extend it after looking at automotive sales and the situation in other industries.”
Hong met U.S. Treasury Secretary Steve Mnuchin in Washington and requested that the U.S. government not levy new duties on Korea vehicles.
Mnuchin reportedly said he understood the importance of trade relations between Korea and the United States, adding that the U.S. government has not yet made its final decision. The U.S. Commerce Department in February submitted a report to the White House that may propose raising tariffs on imported vehicles up to 25 percent.
Although details of the report have not been disclosed, it is reported that the White House is considering applying 25 percent auto tariffs on the grounds of national security.
BY LEE HO-JEONG [firstname.lastname@example.org]