The head of South Korea's bourse operator said Wednesday it would be best not to tax derivatives trading, but if it's unavoidable, he would recommend levying capital gains tax rather than transaction tax and wait until the local stock market recovers.
The government is considering levying taxes on financial products including derivatives and bring them out of what it calls "taxation dead zone." The finance ministry is in talks with related agencies over which of the two types of taxes to levy.
"Given sluggish trading, it would be best not to impose taxes," Choi Kyung-soo, chairman of the Korea Exchange, said in an interview with Yonhap News Agency. "But if the government is going to do so, it would be better to introduce capital gains tax rather than transaction tax."
Transaction tax could drive away foreign investors from the Korean market because of higher costs, and capital gains tax would minimize negative impact on turnover, he said, adding that such taxation should be delayed to 2016 or 2017 when the stock market may bounce back.
Derivatives include futures and options that yield higher returns on greater risks. In Korea, the world's 11th-largest derivatives market, they track the KOSPI 200 index as the benchmark.
Market players oppose taxing the investment tool, arguing that it will seriously hinder stock trading that has already been dented since last year.
Local brokerage houses suffered deep losses in the fourth quarter of last year due to falls in commission income and increased costs amid stagnant stock markets. The combined loss by 62 brokerage firms came to 206 billion won ($192 million) during the October-December period, widening from losses of 23.3 billion won in the third quarter of last year.
Choi said that the KRX is aiming to extend regular stock trading hours in the first half of next year through a consensus in consultation with the government and industry players.
On Jan. 9, the KRX unveiled measures to revitalize the local stock market that included extended trading hours to boost market liquidity and attract more investors from different time zones.
The KRX is seeking to extend the trading hours by one hour from the current six-hour system under which the stock market opens from 9 a.m. to 3 p.m. (Yonhap)