[Investment Strategy] Must-Read Before the FITS Implementation! How to Prepare for the Exodus of Whales and Market Volatility

                                           

       

[Economic Analysis] Controversy over the Introduction of the Financial Investment Income Tax (FITS)

       

The hottest topic in the recent investment market is undoubtedly the **Financial Investment Income Tax (FITS)**. With its implementation drawing near, the debate between the political sector and market participants over its pros and cons remains fiercely contested. In this post, we will examine the **key details** and **implementation timing** of FITS, and analyze the **main phenomena and problems** that may arise upon its introduction.

   

   

Controversy over the Introduction of the Financial Investment Income Tax (FITS): Analysis of Implementation Timing and Key Issues

   

1. What is the Financial Investment Income Tax (FITS)?

   

The Financial Investment Income Tax (FITS) is, as the name suggests, a system that taxes income generated from financial investments such as stocks, bonds, funds, and derivatives. The core is that it imposes a tax on **'capital gains'**, not 'losses'.

   

Currently, in the case of domestically listed stocks, small shareholders do not pay tax on trading profits, and only pay capital gains tax when they meet specific criteria to be classified as a **'major shareholder'** (e.g., holding more than 1 billion KRW per stock). However, if FITS is introduced, all investors who earn a certain amount of profit, regardless of whether they are a major shareholder or not, will be subject to taxation.

   

       
• Taxation Method: Domestic stocks and related funds, etc., are subject to a basic deduction of up to **50 million KRW annually**.
       
• Other Financial Investments: Overseas stocks, bonds, derivatives, etc., have an annual deduction of **2.5 million KRW**. (This is the same as the current standard for overseas stock capital gains tax.)
       
• Tax Rate: For profits exceeding the basic deduction, a tax rate of 20% is applied for amounts up to 300 million KRW, and 25% for amounts exceeding 300 million KRW.
   

   

This system was initially discussed alongside the phased reduction of the **Securities Transaction Tax**. That is, it was designed as part of the 'taxation advancement' to impose the tax on 'income' rather than on the 'transaction' act.

              

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2. Implementation Timing: Why is it Controversial Now?

   

The timing of the FITS implementation is currently the biggest point of contention. It was originally scheduled to be implemented in 2023, but was postponed for two years, citing reasons such as mitigating market shock, and is now scheduled for **implementation in 2025 (or January 2026)**.

   

However, as of November 2025, the government is strongly pushing for the **'complete abolition'** of FITS, citing the need to resolve the 'Korea Discount' and vitalize the capital market. In contrast, the opposition party, which holds a majority in the National Assembly, insists on **'implementation'** as scheduled, based on the fundamental principle of taxation, 'taxation where there is income,' and the argument against 'tax cuts for the rich.'

   

Ultimately, this matter is directly linked to a political issue that requires legal revision, and the failure of both sides to reach an agreement could result in only increasing market uncertainty.

   

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3. Anticipated Phenomena and Problems Upon FITS Introduction

   

The debate surrounding the introduction of FITS is based on clear arguments for and against it. The 'problems' and anticipated phenomena that the market is concerned about can be summarized as follows:

   

(1) Year-end Mass Selling and Increased Market Volatility

   

This is the most direct concern. There is a possibility that investors attempting to realize gains to avoid or reduce taxes will massively sell stocks before the tax base date (usually the end of the year) arrives.

   

       
• Exodus of 'Whale' Investors: Selling pressure from 'whale' investors (subject to taxation) who earn profits exceeding 50 million KRW annually could increase market volatility every year-end.
       
• Capital Flight: If investors determine that the attractiveness of the domestic stock market has decreased due to the tax burden, an incentive arises to move capital to overseas markets where taxes are non-existent or lower.
   

   

(2) Double Taxation and Deepening the 'Korea Discount'

   

Currently, in Korea, the **Securities Transaction Tax** is paid regardless of whether a profit is made when selling stocks. If FITS is introduced and the Securities Transaction Tax is not completely abolished, investors may perceive it as **'double taxation'**. This is because FITS is paid on profits, but the transaction tax must still be paid even if a stock is sold at a loss.

   

This additional transaction cost is facing strong criticism that it could actually deepen the chronic undervaluation phenomenon of the Korean stock market, the **'Korea Discount'**, instead of resolving it.

   

(3) Tax Equity and Tax Resistance

   

Of course, the opposing logic is also firm. 'Taxation where there is income' is the most basic principle of taxation. From the perspective of fairness with earned income workers who pay massive taxes on their salaries every year, the argument is that not taxing hundreds of millions of KRW in stock gains is actually unfair.

   

       
• 'Tax Cuts for the Rich' Controversy: The argument for the abolition of FITS is criticized as being 'tax cuts for the rich,' only benefiting the top 1-2% of investors who earn profits of 50 million KRW or more.
       
• Irrelevant for the Majority of Investors: According to actual statistics, an analysis suggests that the majority of individual investors (approx. 99%) are not subject to taxation as their annual profits are below 50 million KRW.
   

   

However, there is a fierce counter-argument that even if the tax target is a minority, if these 'whale' investors are the key providers of overall market liquidity, their exodus could lead to a slump in the entire market.

   

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4. Conclusion and Summary

   

The controversy surrounding the introduction of the Financial Investment Income Tax (FITS) is a critical issue that goes beyond a simple tax introduction problem, involving complex variables such as **tax equity, market revitalization, and capital flow**.

   

Those who support its introduction claim 'tax justice' and 'taxation advancement,' while those who oppose it claim 'market slump' and 'double taxation,' maintaining parallel stances.

   

Ultimately, whether FITS is implemented as scheduled, completely abolished, or postponed again, the biggest pain the market is currently experiencing is **'policy uncertainty'**. It is difficult for investors to set long-term investment plans in a predictable environment. Clear policy direction and consistent decisions that market participants can accept are more urgent than ever.

   

        Key Summary:
        The core of the FITS introduction controversy is the clash between **'tax justice'** and **'market revitalization'**. The biggest problem is **'policy uncertainty'**, and clear and consistent decisions that market participants can accept are urgently needed.    

   

       

The content of this blog is for reference regarding investment judgment only, and investment decisions must be made under individual judgment and responsibility. Under no circumstances can the information in this blog be used as evidence for legal liability regarding investment results.