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Brokerages blast capital gains tax plan

Securities companies claim new tax could drive away investors


As the country’s policymakers began to discuss imposing a capital gains tax on shares to increase tax revenues, domestic brokerages expressed concerns about its negative impact on Tuesday.

Although the debate is just getting started among politicians, securities houses are voicing their worries as the stakes couldn’t be higher if the current system is modified.

The key point of contention is whether the fallout of a capital gains tax would outweigh the possible benefits in terms of investment sentiment here.

Opponents the tax would discourage investors from putting their money in the local bourse, hurting the already jumpy stock market battered by a slew of external shocks including the eurozone debt crisis.

Proponents, however, claim that new income, wherever it might be, should be subject to taxation, and a capital gains tax, in fact, could encourage long-term investment plans.

The brokerages’ concerns have to do with their mainstay business of collecting commission for trade orders placed by clients. Were a capital gains tax introduced, trading volume would decline rapidly, at least for a while, and undercut the revenues of securities houses.

Brokerage officials said the change in the tax system could drive away not only individual investors but also foreign and institutional traders, many of whom view the country’s current system as a strong incentive.

In Korea, taxes are imposed only on capital gains involving unlisted shares and stakes owned by large shareholders. Except for those special cases, authorities collect a 0.15 percent trading tax on KOSPI shares and 0.3 percent on KOSDAQ shares.

In advanced countries such as those in the Organization for Economic Cooperation and Development, capital gains taxes are imposed on shares, a difference that gives a better starting point for investors on the local bourse.

State-run economic institutes, however, see greater benefits of a capital gains tax compared with the current trading taxes in terms of fairness.

In advanced countries, long-term investments are partly supported by capital gains tax as investors weigh a variety of factors when they unload shares to take profits because they have to pay taxes at the moment when profits are generated through trading.

One tricky issue involves the current taxes imposed on share trading. If capital gains taxes are introduced, the trading taxes would likely be abolished to avoid double taxation.

Brokerages said the overhaul of the taxation system for stock trading should proceed cautiously together with enough discussion and opinion gathering as its impact could be far-reaching.

By Yang Sung-jin (insight@heraldcorp.com)
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