Korea’s President Lee is a month into his term, and so far he has remained admirably focused on promoting the “KOSPI 5000” agenda.
A long-awaited bill to reform the Commercial Act just passed the National Assembly as this newsletter went to print, and it includes provisions expanding the duty of care of corporate directors from “companies” to “companies and shareholders”, mandating electronic general shareholder meetings for large companies and limiting the voting rights of shareholders and related parties to 3% when electing audit committee members.
By implementing these reforms, the government is acting against the express wishes of the chaebols, who have campaigned loudly against them. It is strong evidence that the incoming administration is able to get things done. It also reflects recognition that, with almost a third of Korean people having brokerage accounts, anyone threatening to derail the stock market’s 30% year-to-date rally would be playing a dangerous game.
Taxes are another area of focus. Following the discussions on inheritance tax changes for listed shares – outlined in last month’s newsletter – the government is turning its attention to dividends.
Currently, all financial income including dividend income is taxed at 15.4% below KRW 20 million, and at progressive rates of up to 49.5% above KRW 20 million. The National Planning Committee and Ministry of Economy and Finance are considering eliminating the progressive rate schedule so that everything is taxed at 15.4%.
Historically, chaebols have been reluctant to pay anything more than nominal dividends to their owners due to the high tax burden. If President Lee’s dividend tax reform goes ahead, it should encourage operating subsidiaries to raise payouts, which would be positive for the valuations of the listed holding companies that own them.