Retail Backlash Forces South Korea to Junk Capital Gains Tax Plans

South Korea has abandoned a controversial plan to slash the capital gains tax threshold for stock investors, marking President Lee Jae Myung’s first major policy reversal since taking office in June, Youkyung Lee reported for Bloomberg News.

The proposal involved lowering the capital gains tax threshold on stock holdings to 1 billion won ($717,535) from 5 billion won.

The decision follows months of opposition from Lee’s core voter base, many of whom are retail investors.

The proposal—to lower the capital gains tax threshold on stock holdings to 1 billion won ($717,535) from 5 billion won—sparked doubts about the government’s commitment to reviving the stock market and triggered an August selloff that wiped out billions in value.

This week, the benchmark Kospi Index rose as much as 0.7% to a record high, extending last week’s gains on expectations of the reversal. Boosted by corporate reform momentum and the global AI boom, the index is up about 42% this year, one of the world’s best performances.

Officials had pitched the tax changes as a way to raise revenue and offset pressures from higher U.S. tariffs.

But critics warned the plan would rattle investor confidence and undermine one of the strongest markets of 2025.

“The U-turn on the stock capital gains tax reflects more than wavering policy consistency—it exposes flaws in the large shareholder gains tax, which stoked retail investors’ fears of a major selloff,” said Hyosung Kwon, an economist at Bloomberg Economics.

“Future reforms must be sharper and distortion-free to avoid repeating past mistakes.”