Rep. Oh Ki-hyung to present proposals at Tuesday party caucus; disagreements remain between government and lawmakers over stock valuation methods
The Democratic Party of Korea is stepping up legislative efforts to revitalize the capital market. Amid heightened stock market volatility, the ruling party is pushing to address structural factors behind the market's chronic undervaluation — including a bill to prevent deliberate share-price suppression and a mandatory tender offer regime.
The Democratic Party will hold a general caucus at the National Assembly at 2 p.m. Tuesday to discuss capital market revitalization measures. Rep. Oh Ki-hyung — who leads the party's side on the National Assembly's Finance and Economy Committee and chairs the party's K-Capital Market Special Committee — will present the relevant policy proposals and exchange views with fellow lawmakers. Key legislative items on the agenda include the share-price suppression prevention bill and the mandatory tender offer system.
A senior floor leadership lawmaker told The Herald Business by phone that "there is no way for politicians to artificially prop up the stock market," but added that "there are various institutional shortcomings suppressing market normalization that we should be able to address."
The share-price suppression prevention bill targets a loophole that allows major shareholders to deliberately keep share prices low to reduce their inheritance and gift tax burden. Under current law, listed shares are valued at the average price over the two months before and after the date of inheritance or gift — a window critics say can be exploited to lower the taxable value.
However, disagreements remain between the government proposal and the lawmakers' bill over valuation methods and the level of taxation. The government's plan would expand the valuation period for companies suspected of suppressing their share prices and apply a minimum 30 percent premium to the assessed value of qualifying undervalued companies. The lawmakers' bill, by contrast, would use the supplementary valuation method applied to unlisted shares and set 80 percent of a company's net asset value as the floor for assessment.
The tension between the principle of taxing at market price and the demand for more effective deterrence against share-price suppression means further discussion is needed before a specific legislative direction can be settled.
At a public forum on revising the inheritance and gift tax law to prevent share-price suppression, held at the National Assembly on Monday, Democratic Party Rep. Lee Hun-ki said passing "an ineffective Ministry of Economy and Finance proposal would undermine public trust in the capital market and in our government and party," warning it could trigger "a second leveraged ETF crisis."
Lee added that "despite President Lee Jae-myung's order for a full review, the Ministry of Economy and Finance is clinging to its existing valuation method," and said that if the ministry's proposal prevails, "it would be better not to pass the bill at all — if it takes effect, there will be enormous fallout."
At Monday's forum, an alternative proposal was also put forward that would broaden the scope of the government plan and raise the minimum premium from 30 percent to 40 percent. Under the alternative, the measure would apply — regardless of whether a company is listed on the Kospi or Kosdaq — to firms that ranked in the bottom 25 percent by price-to-book ratio within their sector in at least three of the most recent six half-year periods. The proposal is a compromise that strengthens the tax effectiveness of the existing government plan while preserving the principle of market-price-based valuation.
Meanwhile, the Democratic Party's K-Capital Market Special Committee will hold a closed-door meeting Tuesday to review the issues and legislative proposals raised at Monday's public forum. The party plans to bring the bill to a plenary vote in December after discussions in the Finance and Economy Committee later this month. However, with disagreements between the government and lawmakers still unresolved over valuation methods and the scope of application, the outcome of future negotiations will be the key to whether the legislation advances.
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