South Korea Tax Hike Plan Wipes Out $83 Billion in Market Value

Advanced | August 13, 2025

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South Korea Tax Hike Plan Shakes Markets

On August 7, 2025, South Korea’s Ministry of Economy and Finance announced a sweeping South Korea tax hike plan that rattled financial markets. Within hours, the Korea Composite Stock Price Index (KOSPI) fell 3.4% to 2,347.12 points, erasing about 110 trillion won ($83 billion USD) in market value — the sharpest one-day loss since March 2020. This South Korea tax hike plan also sparked concerns among international investors.

Details of the South Korea Tax Hike Plan

The plan raises the top corporate tax rate from 25% to 28% for companies earning over 300 billion won ($220 million USD) annually. It also increases the capital gains tax on large shareholders from 22% to 25%. The government expects to generate an extra 12 trillion won ($9 billion USD) annually, which will help reduce the budget deficit and support healthcare and pensions for the country’s aging population.

Market and Investor Response

Foreign investors sold 1.24 trillion won ($880 million USD) in shares that day — the largest net sell-off since June 2020. Analysts warned that higher taxes could hurt corporate profits, deter foreign investment, and reduce South Korea’s competitiveness compared to countries like Singapore and Vietnam.

Government’s Position

Finance Minister Choi Sang-mok argued that the increase keeps South Korea’s corporate tax rate below Japan’s 30.6% and aligned with the OECD average of 27.8%. He stressed the importance of fiscal stability as welfare costs rise and the working-age population declines.

Lessons from Other Countries

Japan’s 2016 corporate tax hike led to a 4% Nikkei 225 drop, but markets recovered in weeks. The UK’s 2021 capital gains tax adjustments caused short-term volatility before stabilizing. Economists believe South Korea may follow suit, although export-heavy sectors like semiconductors could take longer to rebound.

Vocabulary

Capital gains – (noun) Profit from selling assets like stocks or property.
Example: “She paid taxes on the capital gains from selling her shares.”
Corporate tax – (noun) Tax on a company’s profits.
Example: “The government increased the corporate tax rate to boost revenue.”
Deficit – (noun) When spending exceeds income.
Example: “The budget deficit reached a record high last year.”
Fiscal – (adjective) Related to government revenue and spending.
Example: “The fiscal policy aims to reduce national debt.”
Shareholder – (noun) A person or entity that owns shares in a company.
Example: “Shareholders will vote on the proposed merger.”
Sell-off – (noun) A rapid selling of assets, usually causing a price drop.
Example: “A market sell-off erased billions in value.”
OECD – (noun) Organisation for Economic Co-operation and Development.
Example: “The OECD includes 38 member countries.”
Competitive – (adjective) Able to match or outperform others.
Example: “Lower taxes make the country more competitive internationally.”
Stabilize – (verb) To make steady or less likely to change suddenly.
Example: “The central bank raised rates to stabilize the currency.”
Export-reliant – (adjective) Dependent on selling goods to other countries.
Example: “South Korea is an export-reliant economy.”

Discussion Questions (About the Article)

What was the immediate market impact of the tax announcement?
How much extra revenue is expected from the South Korea tax hike plan?
Why did foreign investors react so strongly?
How does South Korea’s corporate tax compare globally?
What lessons can be learned from Japan and the UK?

Discussion Questions (About the Topic)

Do higher corporate taxes always discourage investment?
How should governments balance revenue needs with economic growth?
Which industries are most sensitive to tax changes?
Could these tax hikes improve social welfare in the long run?
How might the plan affect South Korea’s global competitiveness?

Related Idiom

“Throw cold water on” — To discourage or reduce enthusiasm for something.
Example: “The tax hike news threw cold water on investor optimism.”

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This article was inspired by: The Chosun Daily, Reuters