“Bottom 25% by industry, premium rate 40%”… ‘Pushing down on stock prices’ government plan supplementation argument

(Sejong = Yonhap News) Reporter Song Jeong-eun = Regarding the method of evaluating listed stocks under the so-called 'stock price suppression prevention law' being promoted by the government, an alternative was proposed that the target of application should be expanded to low PBR (price-to-book ratio) companies in the bottom 25% of each industry and the minimum premium rate should be increased to 40%.

Lee Hyo-seop, head of the Financial Industry Department at the Korea Capital Market Institute, made this claim at the 'Public Debate on the Amendment to the Inheritance and Gift Tax Act to Prevent Stock Price Suppression' held at the National Assembly Hall hosted by the Democratic Party of Korea's K-Capital Market Special Committee on the 9th.

In the tax law revision bill, the government estimated that companies with low PBRs, which are in the bottom 25% of the KOSPI industry and the bottom 10% of the KOSDAQ for more than 12 of the last 13 half-years, had their stock prices depressed, and announced that they would levy taxes by increasing the stock value by at least 30%.

As criticism was raised that the scope of application is narrow and the requirements can be easily avoided, Director Lee proposed an alternative to maintain the government plan system but expand the scope.

First, it was proposed to set the target of application to the bottom 25% of each industry at least three times in six half-years, regardless of KOSPI or KOSDAQ.

However, if they are not in the bottom 25% for all three recent half-years, they should be excluded in recognition of their efforts to improve low PBR, and when calculating the period of low PBR, they should exclude half-years with a PRB of 0.8 times or more.

In addition, he said that the minimum surcharge rate should be increased from 30% to 40%. In this case, it was explained that the highest tax rate would increase from 78% in the government plan to 84%.

In addition, it was proposed to set a limit on taxation so that the calculated tax amount does not exceed 90% of the market value of the stock, taking into account the tax liability.

Director Lee said, “This is a plan to maintain the government plan system while considering market value principles, enforceability, and elimination of unconstitutionality, while increasing the effectiveness of taxation.”

At the National Assembly Tax Subcommittee, measures to prevent stock prices are expected to be discussed, focusing on the alternative presented by Director Lee and the proposal of Democratic Party member Lee Hoon-ki.

Rep. Lee Hoon-ki's bill targets cases where the market price of the listed stocks of the largest shareholder is less than 80% of the net asset value.

Lee Jung-kyo, a professor at Yonsei University Law School and a debater on the day, pointed out, "In the case of the National Assembly's bill, in the extreme case, there is a possibility that the amount of tax levied will be greater than the property subject to levy, so it demands taxation that exceeds the taxpayer's ability to pay." He added, "It is highly likely to be unconstitutional because it infringes on the taxpayer's property rights."

He added that since low PBR is basically a capital market problem, it should be solved through capital market policy, not the tax system.