Chairman Jung Ji-won of the Korea Exchange. (KRX) (Photo:KRX)

The stock market trading slowed somewhat even though the new tax on stock trading was put into force on May 30. Transactions amounted to 1.099,1 billion, a fall from the 1.383,9 billion trade transactions averaged daily in May.

The daily transaction value came to 8.680,5 trillion won, compared to the 11.474,2 trillion won on average traded during May and the 13.183,8 trillion won average daily transaction value in 2018.

Theoretically, when the tax on stock trading is lowered, the trading should increase as the cost for stock trading falls. In July, 1995, the tax on stock trading was cut to 0.45 percent from 0.59 percent and in April , 1996, it was cut again to 0.40 percent with the average trading of stock rising 1.9 times to 644.5 billion won in the first three months (July-Sept.) after the tax was cut from 325.6 billion won in the April ~ June the preceding three month period.

But it is unclear if the trading would jump due to the cuts in the tax. The Kospi index hit 2,200 points on average in the second half of last year, but it fell to 2,000 this year due to investors pesimisism creeping into the market.

The daily average trading volume was worth 11.474.2 trillion won last year, but that fell to 9.547,4 trillion won up to May 29 this year, down 16.7 percent. Industry sources picked out trade friction between the U.S. and China as the main cause for the investors’ reservation to continue to buy stocks.

South Korea lowered the stock trade tax by 0.05 percentage point this year and reflected tax rates on capital gains counting in all profits and losses made in home and overseas markets at the year-end to rationalize tax code in capital investments.

The Financial Services Commission and the Ministry of Economy and Finance said that the government will lower stock trade tax this year to help stimulate retail stock investment.

The cut will lower current stock trade tax on shares listed on the main Korea Composite Stock Price Index (Kospi) and secondary Korea Securities Dealers Automated Quotation (Kosdaq) from 0.3 percent to 0.25 percent and on non-listed shares from 0.5 percent to 0.45 percent. The transaction tax on shares listed on the country’s smallest bourse Korea New Exchange (Konex) will be pushed down from 0.3 percent to 0.1 percent.

Stock trade tax in Korea was introduced in 1963. It was abolished and then re-introduced, with the current tax range implemented since 1996. The tax has drawn complaints over double taxation as shareholders also pay tax on the income from stock trade. No tax is levied on stock trade in the United States and Japan while the rate in China and Hong Kong is only 0.1 percent.

In Korea, there are two separate taxes stock trade tax that is levied on each stock transaction and income made from stock trade. The government raises the tax category subject to transfer tax by lowering the stockholding threshold to 10 billion won ($8.87 million) from 15 billion won from April next year and further to 300 million won from April, 2021.

Along with the stock trade tax cut, the government decided to allow investors to annually calculate income on capital gains of local or foreign shares upon investment losses.

The change will allow investors to add up all losses and profits from various financial investment products and calculate them before being taxed on income.