Financial Investment Income Tax Abolition Likely: Impact on Domestic Stock Market and Beneficiaries

A bill to amend the Income Tax Act, centered on the complete abolition of the Financial Investment Income Tax (FIIT), is highly likely to pass the National Assembly plenary session. As tax-related uncertainties that have weighed on the market are resolved and the government's Value-up Program tax benefits take shape, a massive influx of capital into the domestic stock market is anticipated.

3 Key Impacts of the FIIT Abolition on the Domestic Stock Market

The news of the likely passage of the FIIT abolition bill acts as the biggest positive catalyst for the stock market in the second half of the year. The major impacts are as follows:

• Recovery of Investment Sentiment and Prevention of Capital Outflow: As retail investors' concerns over heavy tax burdens disappear, the likelihood of capital that had been flowing into overseas markets returning to the domestic market has significantly increased.
• Strength in Value and Dividend Stocks: Due to the 'Value-up Program' tax benefits (such as separate taxation on dividend income) announced alongside the FIIT abolition, the upward price momentum for financials and holding companies that actively engage in shareholder returns is expected to strengthen.

KOSPI Attempting to Break Upper Bounds: Foreign investors are also relieved of concerns regarding retail sell-offs driven by tax issues, which suggests they will likely maintain a net-buying trend focused on large-cap blue chips like semiconductors.

Frequently Asked Questions (FAQ)

If the FIIT is abolished, will there be no taxes on stocks at all?

No. Even with the complete abolition of the FIIT, the existing 'Capital Gains Tax for Major Shareholders' system will be maintained. Only investors who meet specific criteria for major shareholders, such as holding 5 billion KRW or more in a single stock, will pay taxes on their capital gains. Retail investors' stock trading profits will remain tax-exempt.

What is the core of the 'Value-up Program' tax benefits?

The government provides corporate tax reduction benefits to companies that increase their shareholder returns (dividends and treasury stock cancellations) by 5% or more compared to the previous year. Additionally, shareholders invested in these companies will benefit from a low-rate separate taxation on their dividend income (currently at 15.4%), which is the core measure to effectively increase the real dividend yield.