Market Overview - On August 1, the South Korean stock market experienced a sudden drop, with the Seoul Composite Index falling nearly 4%, marking the largest decline since early April [4] - This decline led the Asian markets, raising concerns about the government's plan to increase taxes on businesses and investors [4] Tax Policy Changes - The South Korean Ministry of Finance proposed to lower the capital gains tax threshold from 5 billion KRW (approximately 714,250 USD) to 1 billion KRW, while also increasing transaction taxes [6] - The corporate income tax rate is set to rise from 24% to 25%, reversing the previous government's tax reduction policies [6] - The proposed changes have sparked significant backlash among retail investors, with a nationwide petition for immediate withdrawal gaining traction and public support [6][7] Economic Context - The new administration under President Lee Jae-myung aims to boost government revenue to enhance subsidies and stimulate consumption amid slowing economic growth [6] - The decline in corporate tax revenue highlights the increasing fiscal pressure on South Korea, the fourth-largest economy in Asia [6] Market Sentiment - Despite the recent downturn, the Seoul Composite Index has risen over 30% this year, benefiting from optimistic sentiments surrounding corporate governance reforms initiated by the new government [6] - However, the proposed tax adjustments are causing concern among investors, particularly as they may increase the number of taxable investors [6][9] Investor Reactions - Samsung Electronics, South Korea's largest market-cap stock, has seen consecutive declines due to disappointing earnings reports, which have affected market expectations [7] - If market momentum continues to wane, achieving President Lee's ambitious goal of pushing the stock market above 5,000 points, over 50% higher than current levels, will become increasingly challenging [9] Tax Rate Details - The proposed stock transaction tax will increase from 0.15% to 0.2% [9] - Dividend income between 20 million and 300 million KRW will be taxed at 20%, while amounts exceeding 300 million KRW will be taxed at 35% [9]

Group 1 - The South Korean stock market experienced a sudden drop, with the Seoul Composite Index falling nearly 4%, marking the largest decline since early April, primarily due to government plans to increase taxes on corporations and investors [4][5] - The proposed capital gains tax threshold will decrease from 5 billion KRW (approximately 71,425 USD) to 1 billion KRW, alongside an increase in transaction tax and a rise in the corporate income tax rate from 24% to 25%, reversing previous tax cuts [4][6] - The proposed tax changes have sparked strong backlash among retail investors, with a nationwide petition for immediate withdrawal gaining significant public support [5][6] Group 2 - Despite the recent downturn, the Seoul Composite Index has risen over 30% this year, benefiting from optimistic sentiment surrounding corporate governance reforms initiated by the new government [5] - The government, led by President Lee Jae-myung, aims to boost weak fiscal revenues to increase subsidies and stimulate consumption amid slowing economic growth [6][9] - The proposed tax adjustments are causing concern among investors, particularly as disappointing earnings reports from some companies shift market focus towards government policy reforms [9] Group 3 - Samsung Electronics, South Korea's largest market-cap stock, has seen consecutive declines due to its earnings report falling short of analyst expectations, despite previous market optimism regarding its performance in memory chips and foundry services [6][9] - The government's tax proposals, including an increase in stock transaction tax from 0.15% to 0.2% and a new tax structure for dividend income, are viewed as unexpected negative news by the market [9]