After the Abolition of FIIT in 2026: Securities Transaction Tax Increase and Shifts in Investment Strategy
Analyzing the stock market landscape in 2026, where the securities transaction tax has reverted to 0.20% following the confirmed abolition of the FIIT. We examine changes in real yields for retail investors due to increased costs and the restructuring of long-term portfolios aligned with the ongoing capital gains tax exemptions.
Stabilization of the FIIT Abolition and Tax Normalization
Following the final passage of the bill to abolish the Financial Investment Income Tax (FIIT) at the National Assembly in late 2024, the domestic stock market in 2026 has demonstrated complete adaptation to the new tax environment. The securities transaction tax, which was originally slated for a phased reduction under the premise of FIIT implementation, underwent a comprehensive review to secure tax revenue and normalize the taxation system. Consequently, it has reverted to and is currently applied at a rate of 0.20% (including the special tax for rural development) for both the KOSPI and KOSDAQ markets.
This decision was the result of a policy compromise that comprehensively considered the practical limitations associated with introducing a new taxation infrastructure and the strong tax resistance from retail investors. While market participants positively evaluated this as a complete resolution of tax uncertainty, the increase in real transaction costs is demanding a fundamental structural shift in existing trading strategies from investors.
Economic Implications of the 0.20% Securities Transaction Tax
The restoration of the 0.20% transaction tax rate acts as a direct and persistent frictional cost for high-frequency trading and short-term momentum trading strategies. According to quantitative analysis, for active traders with a monthly portfolio turnover rate exceeding 200%, the cumulative annual transaction tax burden can easily surpass 4.8% of total account assets. This implies more than just an increase in fees; considering inflation and risk-free rates, it necessitates significantly higher win rates and precise entry and exit points to defend realized returns. Consequently, the market's liquidity provision patterns are exhibiting distinct differences from the past.
Polarization of Cost Structures by Investor Type
Although the comprehensive introduction of capital gains tax for retail investors was thwarted due to the FIIT abolition, the existing taxation framework for major shareholders—which levies taxes on investors holding above a certain threshold per stock—remains firmly in place. This dual tax structure has resulted in a polarization of the effective tax burden depending on investment scale and trading frequency.
Differences in Real Yields Based on Trading Frequency and Asset Size
- Short-term Traders: Directly impacted by the transaction tax burden, the expected return visibility of scalping and day trading has been significantly downgraded. The barrier to entry for ultra-short-term trading utilizing market volatility has effectively been raised.
- Long-term Value Investors: With the comprehensive tax exemption benefits on capital gains (excluding major shareholders) remaining resolute, long-term holding strategies betting on corporate fundamental growth have secured the most advantageous position in terms of tax efficiency.
- High-Net-Worth Individuals: The traditional tax-saving practice of diversifying portfolios to ensure holdings per stock remain below the major shareholder capital gains tax threshold is becoming further entrenched. This also acts as a positive function, partially mitigating valuation distortions in the small and mid-cap markets.
Capital Flows Induced by Changes in the Tax Environment
The current combination of a 0.20% transaction tax and capital gains tax exemptions ultimately operates to strongly encourage the long-term retention of capital within the stock market. As the risks surrounding the introduction of the FIIT over the past two years have been completely resolved, the volatility of institutional and foreign capital supply and demand has noticeably eased. This is analyzed as one of the core factors securing downward rigidity and supporting stable index trends in the recent KOSPI market.
Structural Direction of Long-term Portfolio Reorganization
Considering the two key axes of increased transaction costs and tax exemption benefits on capital gains, the portfolios of domestic equity investors post-2026 are distinctly restructuring towards avoiding frequent trading and holding fundamentally superior companies for the long term. In particular, preference for large-cap blue chips with high shareholder return rates and consistent cash flow generation is surging. The ability of a company to practically enhance shareholder value through dividend expansion and share buybacks and cancellations has now moved beyond a simple theme to become the most critical variable determining a company's structural valuation.