Lawmakers of South Korea’s ruling party are mulling an overhaul of the taxation system for stock trading that currently levies taxes on all transactions regardless of capital gains or losses.

In a rare meeting the liberal ruling party hosted for financial firm representatives on Tuesday, Lee Hae-chan, head of the Democratic Party, acknowledged the need to address the flaws in the country’s financial sector taxation.

“Taxing investors on their losses is excessive,” Lee said.

“It is time we take it up as an agenda,” he added, emphasizing the importance of financial market activity to boost the economy.

Korea currently levies a fixed tax rate of 0.3 percent on all stock transactions regardless of the profit or loss on the investments. Singapore imposes a rate of 0.2 percent, Hong Kong and Taiwan 0.15 percent, and China 0.1 percent.

Most developed markets like the United States, Germany, and Japan levy no tax on stock trade for fear of dampening trading activity and driving away foreign capital.

Local financial institutions have been campaigning against double taxation on trade turnover. On top of transaction taxes, major shareholders have to pay separate taxes for any change in trade turnover value after divestment.

Few countries levy both taxes. Japan, Germany, Australia and the U.S. tax only capital gains while Switzerland, China, Hong Kong and Thailand tax only on the transactions.

Korea has been facing growing calls to revamp its taxation system as local markets are underperforming others amid the global equity slump.

Retail investors in the country have long complained about the stock trading tax, of which 70 percent is paid by individual and day traders. But the Ministry of Economy and Finance has been reluctant to remove the tax as it ensures a reliable source of revenue. Revenue collected from taxes on securities trade reached 6.28 trillion won ($5.6 billion) as of 2017, or 2.4 percent of total tax revenue.

By Kim Je-lim and Kim Hyo-jin

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]