Key points
- Korea's securities transaction tax reached 1.4 trillion won ($1 billion) in July, up 401% from a year earlier.
- The tax is charged on shares sold, not on profit, so heavy selling in a falling market raised more of it.
- Kospi is down 40.4% from its high and Kosdaq 47.6%, and the Samsung and SK Hynix leverage funds have lost 74.7% and 84.2%.
On August 31, the newspaper Munhwa Ilbo (문화일보) reported that Korea collected 1.4 trillion won ($1 billion) in securities transaction tax in July, citing a Ministry of Economy and Finance report. That's up 401 percent from a year earlier. For the first seven months of the year the tax came to 8.2 trillion won ($5.9 billion), a rise of 348.5 percent.
The reason the number climbed isn't complicated. This tax is charged whenever shares change hands, and it doesn't care whether the investor made money or lost it. So it rose because Koreans traded an enormous amount while the market was falling. Trading in listed stocks was up 232.4 percent in June from a year before. The government had also restored the transaction tax rate it had cut in earlier years, which lifted the total further. A second tax on Kospi trades pushed the combined take from the market close to 15 trillion won ($10.5 billion).
The trades behind the tax were mostly losing ones
The Korea Exchange says Kospi has fallen 40.4 percent from its recent high and Kosdaq 47.6 percent. Samsung Electronics is down 44.7 percent from its own peak and SK Hynix 55.7 percent.
The single-stock leverage funds that Korea's regulator approved fell much harder. These funds try to return two times a stock's move each day, so over a long decline their losses build faster than the stock's, because each day's loss is doubled and then compounds on the next. The Samsung leverage fund is down 74.7 percent from its high and the SK Hynix one 84.2 percent. Korea Investment & Securities says half of Samsung investors and 70 percent of SK Hynix investors are holding a loss.
Investors are pulling their money back. The Korea Financial Investment Association says customer deposits fell from a June peak of 139.7 trillion won ($101 billion) to about 107 trillion won ($77 billion), and margin loans shrank alongside them. When an account is cut in half and the owner sells to stop the bleeding, that selling is itself taxed, which is how a losing market keeps filling the treasury.
On the leverage-fund chat boards inside the brokerage trading apps, the mood was dark. "When can I get out of this hell," one post read. "My life is ruined," said another.
Why this is not simply the state cashing in
The government is collecting more of almost everything. National tax revenue for January through July came to 274 trillion won ($198 billion), up 41.4 trillion won ($30 billion) from a year earlier, and it has now taken in 66.0 percent of what it budgeted, the fastest pace in five years.
It would be wrong to read all of that as a prize from the crash. Of the 41.4 trillion won increase, more than half came from income tax, value-added tax and corporate tax rather than from the selling. Income tax alone added 12.2 trillion won. The transaction tax rate had been raised before the market fell, and buying a leverage product carries a risk the buyer takes on knowingly.
Even so, the windfall is fragile. Because these taxes move with trading, the revenue drops quickly once investors leave, and with deposits and margin loans both shrinking, that pullback has already begun. A Ministry of Economy and Finance official said the government "will re-estimate revenue in September, reflecting things like the interim corporate tax prepayment."
