South Korea's Tax Proposal Leads to Market Decline, SK Hynix Takes Biggest Hit

South Korea's proposed tax increase on corporations and stock investors has led to a 3.1% drop in the Kospi index, its steepest decline since early April. SK Hynix fell by over 5% and Hanwha Aerospace by 7%. The MSCI Asia Pacific Index also decreased by 0.4%. The top corporate tax rate would rise from 24% to 25% under the proposal released by South Korea's Ministry of Finance.

South Korea's proposed tax increase on corporations and stock investors has led to a significant market downturn. The Kospi index, the country's primary stock market index, plunged by 3.1%, marking its steepest decline since early April. The MSCI Asia Pacific Index also decreased by 0.4%. The top corporate tax rate would rise from 24% to 25% under the proposal released by South Korea's Ministry of Finance.

The tax reform plan, unveiled by the government on July 31, includes raising taxes on corporate income and stock investments. The government aims to boost tax revenue by 2.6 trillion won in 2026 and 5.6 trillion won in 2027. The plan also proposes lowering the threshold for "major shareholders" subject to stock capital gains tax from 5 billion won to 1 billion won, and introducing separate taxation on dividend income of up to 35%.

The market reaction to the proposal was immediate and severe. SK Hynix, one of South Korea's largest tech companies, fell by over 5%, while Hanwha Aerospace, a major defense contractor, plummeted by 7%. The KOSPI index, which opened at 3,210.32 points on July 31, closed at 3,170.92 points on August 1, marking a 2.3% drop. The KOSDAQ index, a technology-focused market, also saw a decline of 22.79 points (2.83%) to 782.45 points.

The tax reform plan has created uncertainty among investors, particularly those in industries that have benefited from free trade agreements. The government's aim to strengthen the revenue base for fiscal sustainability has been met with skepticism, as it may discourage investment and potentially slow economic growth.

The proposed tax increases come at a time when South Korea is already facing headwinds from slowing global trade and a revised growth forecast by the International Monetary Fund. The IMF has revised South Korea's 2025 growth forecast down to 0.8% from 1.0% due to developments around U.S. tariff negotiations [1].

Investors are watching the situation closely, as the government plans to submit the tax reform proposals to parliament, which is controlled by the ruling Democratic Party, by September 3. The market's reaction to the proposal and the government's response will be crucial in determining the future trajectory of South Korea's economy and stock market.

References:
[1] https://www.reuters.com/world/asia-pacific/south-korea-roll-back-tax-cuts-new-leader-seeks-expansionary-policy-2025-07-31/
[2] https://vovworld.vn/en-US/news/us-announces-tariffs-on-india-brazil-south-korea-1412288.vov
[3] https://www.mk.co.kr/en/stock/11382769