Retail investors sell shares ahead of deadline for tax

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Retail investors sell shares ahead of deadline for tax

Published: 17 Nov. 2021, 17:31 Updated: 17 Nov. 2021, 21:18

A screen at Hana Bank's trading room in central Seoul shows the Kospi closing at 2,962.42 on Wednesday, down 34.79 points, or 1.16 percent, from the previous trading day. [NEWS1]

Korean retail investors continue dumping shares in recent days in part to avoid heavy taxes on stock gains.

This comes as the clock ticks toward the deadline for the government to impose a capital gains tax on what it considers to be large shareholders: individuals owning more than 1 billion won ($847,000) of a public company or over 1 percent of the total shares.

The rate is as high as 30 percent.

It takes two days for stock sales to settle, so this means people who sell shares by Dec. 28 are not obliged to pay the tax. November and December are busy months for many Korean individual investors who wish to sell their shares, while they start to collect them again in January.

According to Korea Exchange, Korean retail investors net offloaded 2.89 trillion won of shares in November as of Tuesday.

By company, retail investors net sold 699.7 billion won of SK hynix, 540.6 billion won of Samsung Electronics and 454.8 billion won of Kakao Games shares.

A Daishin Securities report on Korean retail investor stock activity 2000 to 2020 suggested that they buy between January and October and sell an average 480.2 billion won of shares in November and 1.04 trillion won of shares in December.

“Many retail investors start to sell their shares in November every year in a move to avoid heavy taxes,” said Lee Kyoung-min, an analyst at Daishin Securities.

The Korean government has been widening its net.

In 2000, only investors who owned more than 10 billion won of a company, or over 3 percent of it, were categorized as large shareholders and obliged to pay capital gains taxes. It became 5 billion won or 2 percent in 2013, 2.5 billion won or 1 percent in 2016 and 1.5 billion won or 1 percent in 2018.

In 2020, it was lowered to 1 billion won or 1 percent.

The government was going to reduce the threshold to 300 million won but decided to postpone the move as many people were strongly opposed with the plan.

“Retail investors were on a buying spree between January and October, so they are likely to sell the shares they bought earlier in the year ahead of the deadline,” said Kim Yong-hwan, an analyst at NH Investment & Securities.

Retail investors net bought 86.7 trillion won of shares January to October, up 40 percent compared to same period a year earlier.

But they may cool on stocks given the tightening of the regulations.

"The retail selling spree surges when the government tightens the regulations," said Hwang Sei-woon, a research fellow at the Korea Capital Market Institute. "But since there was no change this year, there will be no huge impact."

In 2017, right before the strengthened regulations were applied, individual investors net offloaded 5.1 trillion won of shares in December. In December 2019, they net sold 4.8 trillion won of shares.

BY SARAH CHEA, HWANG EUI-YOUNG [chea.sarah@joongang.co.kr]