The government is likely to cut the highest tax rate on dividend income

[Seoul Economy]
The ruling party and the government decided to ease the maximum tax rate for separate taxation of dividend income to 25% on the 9th, which is lower than the government's (35%) plan, in consideration of worsening investor sentiment, with the KOSPI index, which has been soaring this year, collapsing to the 4,000-point level in the last 10 trading days.

The tax reform plan announced by the government in July calls for applying △14 percent for 20 million won or less, △20 percent for 300 million won or less, and △35 percent for 300 million won or more. Regarding this, the market has consistently raised opinions that the highest tax rate for dividend income should be revised in order to open the "KOSPI 5000 era." The government's proposal of a maximum tax rate of 35 percent will inevitably have minimal effect on stimulating the stock market, allowing major shareholders to actively increase dividends and increasing dividend payout ratio across companies.

In addition, the Democratic Party of Korea also pointed out that the maximum tax rate should be eased rather than the government's proposal in order to revive the purpose of revitalizing dividends. Reps. Lee So-young and Kim Hyun-jung proposed amendments to lower the maximum tax rate to 25 percent and Rep. Ahn Do-gul proposed amendments to 30 percent, respectively.
Park Soo-hyun, a senior spokesperson for the Democratic Party, explained on the same day, "The party shared the recognition that market liquidity should be induced from the real estate market to the productive sector of companies in the face of increasing housing market instability." When asked if it is okay to push for the maximum tax rate of 25%, he replied, "We will leave the possibility that the party will be oriented toward the one that had the majority opinion." It is interpreted as a move focused on revitalizing the stock market despite some opposition from the Democratic Party of Korea such as the "tax cut for the rich" after trying to lower the standard for major shareholders subject to capital gains tax from 5 billion won to 1 billion won.
The National Assembly's Strategy and Finance Committee is scheduled to launch a tax subcommittee and discuss amendments to the tax law starting this week. In fact, legislative discussions are expected to accelerate as the ruling party and the government agree on lowering the maximum tax rate for dividend income.

On the other hand, if the National Greenhouse Gas Reduction Target (NDC), which is higher than the government's proposal by reflecting civil society opinions than the industry, is implemented, there is a high possibility that the overall manufacturing industry, such as steel, petrochemicals, and automobiles, will be burdened, raising criticism that it is the government's reverse drive to save companies.
The problem is reality and feasibility. Currently, the NDC will be reduced by 40 percent by 2030. This target is at least 13 percentage points higher than the lower limit. The greenhouse gas emission reduction over the six years from 2018 to last year amounted to 90 million tons, but the emission should be reduced three to four times in about 10 years by 2035.

Although the ruling party said it had fully considered realistic conditions, including the impact on the domestic industry, it is also far from the 48 percent reduction target originally proposed by the industry. It is not easy to achieve this goal, but the target is set 5 percentage points higher than this. The government should also prepare for the 61% cap. It has dubbed it a "challenging target," but it must be aware of the fact that it is an IPCC recommendation.
The steel, petrochemical and automotive industries are expected to suffer a direct blow right now. Having emitted 283 million tons of carbon in 2015, the power generation industry is required to reduce its emission to 88.3 million tons (53 percent reduction standard) by 2035. The hydrogen-reducing steel industry, which the government has proposed to reduce emissions in the steel industry, is also expected to be introduced by 2037, which will not affect the NDC in 2035. The automotive industry is also in a state of emergency. The transport sector's greenhouse gas emissions, which were 97.5 million tons last year, should be lowered to 39.3 million tons in a decade.
The ruling party and the government explained that they set the NDC target at a higher level than the government's plan to show the government's willingness to reduce carbon. "We need to announce to the world that our government's reduction plan is bold and strong," Park said. "Considering the impact on the industry, the decision is comprehensively considered that even a slightly excessive goal can ease the burden on future generations."
Reporter Do Hye-won dohye1@sedaily.com Reporter Jung Sang-hoon sesang222@sedaily.com Reporter Jang Moon-soo jmh@sedaily.com

We should keep an eye on Monday's dividend stock trends.

If the government's proposal works properly,
I hope that further increases will be possible.