South Korea shelves capital gains tax reform after investor revolt
South Korea's government just backed down from its controversial crypto tax plan—and investors made it happen.
Market Pressure Forces Policy Retreat
Seoul's proposed capital gains tax reforms triggered immediate backlash from the trading community. Retail and institutional investors united in opposition, flooding regulators with complaints and threatening capital flight. The Financial Services Commission received over 15,000 formal objections within the first week alone.
Policy Whiplash in Real-Time
Officials initially defended the tax as necessary for market regulation and revenue generation. They claimed it would create parity between crypto and traditional asset classes. But the pushback proved too intense—trading volumes dropped 40% during the consultation period as investors parked assets offshore.
The Aftermath: Winners and Losers
Local exchanges are breathing sighs of relief while tax authorities recalculate their revenue projections. The whole episode proves yet again that in global finance, capital flows toward friendly jurisdictions—and away from politicians who think they can simply help themselves to investors' gains.
Kospi surges following President Lee’s reversal of the capital gains tax
President Lee made remarks after his first 100 days in office, noting that revitalizing the market is a central pillar of his administration’s economic agenda. He acknowledged that insisting on tightening the capital gains tax would hinder his agenda; therefore, he discontinued the process. He revealed that the National Assembly would make the final decision, confirming that both ruling parties are on board.
The proposal received more than 140,000 signed petitions from the public, with groups such as the Korean Stockholders Alliance warning of a possible civil unrest. Jung Eui-junh, head of the Korea Stockholders Alliance, said that the Kospi index cannot co-exist with the capital gains tax of 1 billion won.
The Kospi index ROSE 5.63% throughout the past week and recorded a 0.3% gain today at 3,406.20 points. According to Goldman Sachs, the weekly inflow was over 4 trillion won, the largest since 2013. The YTD stands at 41.93%, which is primarily contributed to by technology sector stocks.
Hyosung Kwon, a Bloomberg Economist, revealed that the reversal exposed weaknesses in Korea’s large shareholder tax rules. He noted that the U-turn on the stock capital gains tax reflects more than wavering policy consistency, revealing flaws in the hefty shareholder gains tax. He added that the retail investors feared a significant selloff.
President Lee proposed tax hikes to raise funds for campaign pledges and curb the gaps in a budget affected by weak growth. Scrapping off the tax on capital gains would cause a revenue reduction to the tune of 200-300 billion won, but some of the country officials noted that it was a more negligible risk to take on compared to the potential market disruption it would have caused.
South Korea aligns stock and crypto tax policies
The decision has triggered pressure to find alternative sources of revenue to cover the deficit. President Lee reaffirmed the nation’s plans to increase the tax on stock transactions from 0.15% to 0.2%. He also urged the National Pension Service to increase its stake in diversified domestic investments rather than focusing on international ones.
The Korean government advanced its corporate reforms with the recent amendment to the Commercial Act, which sought to advance the director’s fiduciary duties and introduce cumulative voting for large listed firms. President Lee confirmed that further reforms would follow, targeting unfair executives and certain controlling shareholders to protect minority investors and hence strengthen the Korean financial system.
The plan to scrap capital gains tax follows a recent shift in tax policies affecting the crypto business in the country. Cryptopolitan reported that on July 9, 2025, the National Tax Service (NTS) clarified that residents receiving VIRTUAL assets from overseas as labour income from foreign companies must report and pay the comprehensive income tax. The NTS had cited the provisions under the Income Tax Act from Article 127 on withholding obligations and Article 70 on final tax declarations.
The Ministry of SMEs and Startups also proposed a legislative amendment to scrap the virtual asset-related industries from the list of restricted sectors under the Special Act on the Development of Venture Enterprises. The country had prevented businesses in crypto trading and brokerage from venture company status, limiting their access to tax breaks, financing, and procurement benefits.
Get $50 free to trade crypto when you sign up to Bybit now
