Hit by faltering demand in China for such key products as chips and petrochemical products, putting further stress on the economy from slowing global growth, in particular the U.S.-China trade dispute; DPM Hong says gov’t may cut the securities transactio
Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki. (Photo: MOEF)
South Korea’s exports shrank for a second straight month in January as faltering demand in China hit prices of memory chips and petrochemical products, adding further stress on the economy from slowing global growth and the U.S.-Sino trade dispute.
Exports from Asia’s fourth-largest economy fell 5.8 percent from a year earlier, the biggest decline since September, government data showed on Jan. 31.
Imports fell 1.7 percent, but also less than a 5.3 percent decline predicted in the poll. That resulted in the smallest trade surplus in nearly five years, of $1.34 billion, according to the Korea Customs Service.
Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki said on Jan. 30 that the government has been considering cutting the securities transaction tax and ease the conditions for inheritance of business firms by the next generation of family owners. The government is moving to cut stock transaction taxes in response to growing calls from politicians, businesses and investors.
Hong told a meeting of broadcasting media held on Jan. 30 that the government agrees with some of the grievances raised by some stock investors that the current tax on stock transactions are too high and the government will take up the matter and announce its decision soon.
This is the first time a high-ranking minister commented publicly on doing away with the stock transaction tax altogether which is being talked about inside the ruling circles.
He also said the regulations and laws governing inheritance in Korea are very tough compared to those in advanced countries and the government will look at the ways to ease some of the regulations and laws including those on the requirement that a business should have been run for more than 10 years with the stakes and assets kept at the same levels for the rights to turn over the business firms to the next generation of the family owners.
This is a major shift from its earlier stance that it would not consider lowering the stock transaction tax rate currently set at 0.3 percent.
The Ministry of Economy and Finance said that it will begin discussing plans with the ruling Democratic Party of Korea (DPK) soon to readjust the rate.
Politicians and market participants have said it was ‘too high’ and ‘unfair’ to impose such taxes especially when retail investors have been losing money from investments amid the market downturn.
“We will begin drawing up plans to readjust the rate following growing demands from politicians and businesses.” a ministry spokesman said.
“I understand that the rate is too high as pointed out by the market.” Hong said in a Dec. 30 panel discussion hosted by the Broadcasting Journalists Club in Seoul.
This came as a surprise given that the ministry said it was maintaining the 0.3 percent rate to keep speculators away from the stock market.
Also, ruling party Chairman Lee Hae-chan called for the change a month ago, which caused the finance ministry to respond saying it would not do so unless it could increase the level and scope of capital gains taxes on all investors.
This is because only very few rich investors faced double taxation on stock transactions and gains from investments.
The country will ‘lose’ more than 4 trillion won ($3.6 billion) should it decide to lower the rate to 0.1 percent, the same rate as China, Hong Kong and Taiwan, and lower than Singapore's 0.2 percent. This would affect state coffers amid a growing need to finance welfare.
In 2017, the government collected 6.3 trillion won in taxes on stock transactions, accounting for 2.4 percent of its total tax revenue, according to the ministry.
DPK Chairman Lee reiterated in a Jan. 15 meeting with securities and asset management companies that there was a "problem" with imposing taxes on stock investors even after they lost money. He also called for investment in small- and medium-sized enterprises (SME) with promising and innovative technologies.
Hong said in the panel discussion that his ministry would also consider easing rules governing business inheritance in line with efforts to create jobs. Given the economic situation, it could be hard to reach the target of 150,000 new jobs this year, he added.
Korea imposes the highest inheritance tax rate among the OECD-member economies at 65 percent.