President Lee Jae Myung. [Yonhap]
President Lee Jae Myung. [Yonhap]

The government has begun reviewing potential revisions to its proposed ISA overhaul and a measure aimed at preventing companies from artificially suppressing their share prices, as public feedback on the broader tax reform package pours in. Legislative comments on proposed changes to the comprehensive real estate tax and capital gains tax have surpassed 4,000, driven largely by calls to expand the residency exemption criteria.

The Ministry of Economy and Finance is reviewing whether to revise parts of the tax reform package in light of public comments received since the legislative notice period opened Tuesday, as well as criticism from President Lee Jae Myung and the ruling party, the government said Sunday. "We are actively listening to a wide range of views during the legislative notice period, including points raised by the ruling party, and will thoroughly examine whether any revisions are needed," a government official said.

The ISA overhaul is the first item slated for reconsideration. The government had planned to introduce a new "productive finance ISA" offering enhanced tax benefits for investments in domestic assets, while simultaneously revamping the existing ISA regime to steer capital toward the domestic market.

Critics argued that scrapping the carryover of unused contribution limits under the existing ISA and shortening the contract period to a minimum of three years and a maximum of five years would narrow investor choice. They said creating a new product to encourage domestic investment while diminishing the utility of the existing one runs counter to the policy's stated goal.

President Lee raised the issue at a situation review meeting Friday, questioning why the ISA overhaul had been put forward without adequate preparation and ordering a full review. The government is expected to re-examine the existing ISA regime in its entirety, including the contribution carryover provision and contract duration.

The so-called stock-price suppression prevention bill is also set for review amid questions about its effectiveness. The government's proposal would extend the valuation period for listed shares and apply a minimum 30 percent premium when a company is found to have deliberately depressed its share price to reduce inheritance or gift tax liabilities.

The government proposed that companies whose price-to-book ratio over the past six years falls in the bottom 25 percent of their Kospi sector or the bottom 10 percent on Kosdaq would be presumed to have engaged in share-price suppression. Even companies that do not meet those thresholds could be flagged if they undertook actions harmful to corporate value — such as dual listings or exchangeable bond issuances — and their share price fell by a certain level. Final determinations would rest with the National Tax Service's valuation review committee.

Lawmakers warned that companies could game the system by managing their price-to-book ratio only during certain periods to avoid triggering the threshold. A government official said the ministry plans to engage in dialogue with the lawmakers who introduced the related bills and, if necessary, hold public forums to narrow the differences.

In real estate taxation, the residency exemption has emerged as the central flashpoint. The government's comprehensive real estate tax reform aims to lower the tax burden on owner-occupiers of a single home while reducing benefits for those who own but do not live in their property. Under the plan, the basic deduction for an owner-occupied single home would rise from 1.2 billion won ($846,000) to 1.4 billion won, while the deduction for a non-occupied single home would fall from 1.2 billion won to 900 million won.

The sticking point is what happens when homeowners are away for unavoidable reasons. The government's proposal would count periods of absence as residency — for up to three years — when the owner relocated due to schooling, a job change or transfer, illness, a child's school transfer, an overseas stay, or the need to care for elderly parents.

Public comments have called for extending that exemption to cover absences for childcare, child-rearing, or family caregiving. There have also been requests to recognize long-term relocations due to remodeling as qualifying residency periods, in the same way that temporary moves during redevelopment or reconstruction projects are already partially credited.

The government is wary that overly broad exemptions could be exploited for gap investment — holding property without actually living in it. However, because the specific non-residency exemption criteria will be fleshed out in enforcement decrees, the government plans to incorporate feedback from the legislative notice process when setting the detailed standards.

The deduction method for jointly owned single homes has also drawn controversy. Couples who jointly own one home may choose between paying the comprehensive real estate tax based on each spouse's ownership share or applying the single-household, single-home special provision. Critics say the regime is overly complex because the better option varies depending on the home's price and whether the owners actually live there.

On capital gains tax, the government is pushing to replace the long-term holding special deduction with a long-term residency income deduction centered on how long the owner lived in the home. Single-home owners would shift from a system that combines holding-period and residency-period deductions to one based solely on residency, and a new deduction cap would be introduced — set at 2 billion won in 2028 and 1 billion won from 2029 onward.

The real estate tax proposals have generated a flood of public comment. According to the Ministry of Government Legislation's public participation portal, more than 4,000 legislative opinions had been submitted by 5 p.m. Sunday on the comprehensive real estate tax law and income tax law amendments that the Ministry of Economy and Finance put out for public notice Tuesday. The comments included objections to higher tax burdens as well as calls to expand residency exemptions, improve the joint-ownership deduction, and recognize remodeling relocation periods.

The legislative notice period for the government's tax reform package runs through Aug. 20. The package is then scheduled to go through a vice ministerial meeting on Aug. 27 and a Cabinet meeting on Sept. 1 before being submitted to the regular session of the National Assembly by Sept. 3.


kacew@heraldcorp.com