Ant investors’ underdog act

Audio report: written by reporters, read by AI

Koh Hyun-kohn

The author is the executive editor at the JoongAng Ilbo.

In Korea today, the most powerful interest group may well be the so-called ant investors, individual stockholders numbering 14 million, or about 27 percent of the population. While they may appear to lack a central organization, they are united by a clear goal of lifting share prices and show strong solidarity. Some joke that they are even more formidable than “gaeddal,” an abbreviation of “daughters of reform” that refers to the most fervent supporters of the Democratic Party that is also used derisively to mean “daughters of dogs.”

They can shape public opinion and act in an organized, passionate way. They are also adept at joining forces or parting ways depending on their interests. During debate over amending the Commercial Act, they sided with large private equity funds; when it came to capital gains taxation, they found themselves aligned with major investors. The crude scenes of the 1980s and 1990s, when investors would throw chairs at trading screens out of frustration, have long since disappeared.

Their most effective weapon is the image of being the underdog on a tilted playing field. Even the terms “ant” or “small shareholder” evoke a sense of weakness and the need for protection, similar to groups like basic livelihood recipients, older adults or small business owners. At times, they have tied patriotism to their identity with labels like “Donghak ants,” borrowing from a 19th-century peasant movement. In this way, they have evolved into “righteous victims.”

The notion of stock investors as a disadvantaged group is virtually unheard of globally, and the patriotic angle stretches the claim even further. Under President Yoon Suk Yeol, individual investors helped bring about a ban on short selling and the scrapping of the financial investment income tax. Under former President Moon Jae-in, the government twice extended the short-selling ban ahead of mayoral by-elections in Seoul and Busan, mindful of their votes. The stated reason was to protect small shareholders, but the measures ran counter to global standards. When the capital market regresses into speculation, the damage ultimately falls on the very small shareholders such policies claim to protect.

President Lee Jae Myung set the “Kospi 5000” as a vision. It is unclear if the pledge helped in the election, but whenever stock prices fall, individual investors will persistently present the bill. By using stock-market populism, the administration has walked into the trap of equating the stock index with its performance. Stock prices are the result of governance, not a goal in themselves. When household finances improve, companies make profits, and the economy grows, stock prices rise accordingly. If the economy is in poor condition, stock prices cannot climb in any sustainable way. Even if they are forced up, they will inevitably fall back, as has been proven many times before.

The government’s latest tax reform plan to strengthen taxes on stock investments has drawn backlash from individual investors, who have criticized it as undermining the “Kospi 5000” goal. Their objections focus on three points.

First, lowering the threshold for defining a major shareholder subject to capital gains tax — from 5 billion won ($3.6 million) to 1 billion won in the total value of shares held in any one listed company — prompted a National Assembly petition with over 140,000 signatures. Yet expanding capital gains taxation is a core direction and principle of the tax system followed in advanced economies. It is an issue of fairness, not revenue. Minimum-wage workers pay income tax, and even small amounts of bank interest are subject to tax. Successive governments, conservative and progressive alike, have steadily lowered the major shareholder threshold — from 10 billion won in 2000 to 5 billion in 2013, 2.5 billion in 2016, 1.5 billion in 2018, and 1 billion in 2020. Ahead of last year’s general election, the Yoon administration abruptly raised it back to 5 billion by changing the enforcement decree, reversing years of gradual reform. The proposed 1 billion won level is not new but a return to the earlier standard — a normalization.

Second, the plan to raise the securities transaction tax, including the rural special tax, from 0.15 percent to 0.2 percent has drawn complaints about a tax hike. Yet in 2019 the rate stood at 0.3 percent. It was gradually reduced in preparation for the introduction of the financial investment income tax. With that tax now scrapped, transaction taxes have fallen sharply, creating an abnormal situation where trading is virtually untaxed. In this context, raising the rate is a restoration, not an increase.

Third, expanding separate taxation for dividend income is also controversial. Separate taxation means taxing dividends independently from other income, which reduces the burden. Currently, dividend and interest income are separately taxed up to 20 million won annually. From next year, this will apply even above 20 million won. But individual investors say the conditions are too strict and that the higher top rate for dividends over 300 million won — from 25 percent to 35 percent — renders the benefit meaningless. The question is why such preferential treatment should be extended to asset holders with portfolios worth around 1 billion won in blue chip stocks to earn 20 million won in dividends, especially when discussions to reduce income and inheritance taxes have been shelved due to revenue shortfalls.

The government, which reaped political benefit from the “Kospi 5000” pledge, now faces a test. If stock-market populism was the real intent, easing the tax reform will be the choice. But once it starts yielding to pressure, it will be dragged along for the rest of its term. If it truly intends to reform the market in line with advanced economies and boost corporate value, it should push ahead with the plan. It is also time for individual investors to stop playing the underdog. There are still many in this country in far greater need of help than they are.

This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom staff.