South Korea’s economy is grappling with a crisis fueled by prolonged sluggish domestic demand and escalating tariff disputes linked to U.S. President Donald Trump. However, legislative efforts to enhance corporate competitiveness and alleviate financial burdens on citizens remain stalled. On Feb. 11, the National Assembly’s Strategy and Finance Committee convened a tax subcommittee meeting to discuss an amendment to the Act on Restriction on Special Cases Concerning Taxation. The proposal seeks to raise the tax-exempt limit for Individual Savings Accounts (ISA) from 4 million won to 10 million won ($2,700 to $6,880) per year to inject liquidity into the stock market. However, opposition parties, including the Democratic Party, blocked its passage.
Initially proposed by the government in July as part of the “Value-Up” initiative aimed at boosting corporate value, the bill was categorized as non-controversial in November following bipartisan agreement. However, its progress was derailed amid political upheaval following the Dec. 3 martial law declaration. Now, with the February extraordinary session—potentially the last before an early presidential election—underway, opposition parties have reversed their stance, further obstructing the bill’s advancement. The Democratic Party has faced criticism for what some view as inconsistencies in its position. Party leader Lee Jae-myung has framed his economic policies around a mix of economic populism, welfare expansion, and strategic spending to broaden voter appeal. Yet, his party’s opposition to tax cuts aimed at revitalizing the stock market—a key financing mechanism for companies—on the grounds that they constitute “tax breaks for the wealthy” has drawn scrutiny.
Other economic bills, including the Semiconductor Special Act, which would exempt semiconductor industry R&D personnel from the 52-hour workweek cap, and the Expansion of the National Power Grid Ac, which would transfer responsibility for building electrical infrastructure from the financially strained Korea Electric Power Corporation (KEPCO). to the government, have also stalled due to a lack of political consensus.
Another central pillar of the Value-Up initiative, a tax system designed to incentivize shareholder returns, was not even introduced in the tax subcommittee. The proposal, which includes corporate tax reductions for companies that increase dividends and dividend income tax cuts for shareholders, has faced resistance from the Democratic Party, which views it as a “tax break for the wealthy.”
Launched last year, the Value-Up initiative is a government-led effort to address the undervaluation of South Korea’s stock market compared to major global exchanges. Its goal is to enhance capital flow for companies and improve investment returns for individual shareholders, fostering a “virtuous cycle.”
The core provisions of the Value-Up legislation were initially agreed upon by both ruling and opposition parties in November, with bipartisan floor leaders reaching a tentative consensus on 44 tax law amendments, including ISA tax benefits. However, discussions were shelved in December as the Democratic Party shifted focus to impeachment proceedings against the president in response to the martial law crisis. As a result, the agreed-upon provisions were excluded from the tax law amendments passed at the end of last year.
Since the beginning of this year, the ruling People Power Party (PPP) has pushed to revive the bipartisan agreement and implement the tax revisions as originally planned. However, the opposition has argued that agreements between floor leaders are not legally binding, declining to engage in further negotiations.
Political analysts suggest the Democratic Party is leveraging tax legislation as a bargaining chip in upcoming negotiations, including discussions over a supplementary budget. The party’s opposition to ISA tax benefits, citing “unnecessary tax cuts for the wealthy,” has drawn criticism from the ruling bloc. A PPP official accused the Democratic Party of abandoning tax negotiations in December to focus on impeachment efforts and now seeking justification for its delayed stance.
Critics also point to apparent contradictions in Lee’s recent remarks. Last month, he declared 2025 the “year of capital market advancement,” vowing to eliminate the so-called “K-discount”—a reference to South Korea’s stock market being undervalued relative to its global peers. Just a day before the tax subcommittee meeting, Lee stated in a parliamentary address that his party would mobilize all resources to drive economic recovery and growth, signaling a shift in priorities. However, opposition to the tax legislation appears to contradict those commitments.
