South Korea on the brink of fiscal collapse: tax on "paper" profits crashes KOSPI
Tuesday, June 23, 2026, will go down in the history of the South Korean stock market as "Black Tuesday." On this day, a powerful coalition of lawmakers and civic organizations proposed taxing unrealized (paper) profits from stocks and real estate. Markets reacted with an immediate and deep crash.
The essence of the initiative, presented at a forum in the National Assembly, is radical: the state intends to levy a tax on the increase in asset value, even if the investor has not yet sold them and received real money. In effect, the bill's authors propose recognizing nominal wealth growth as official income, without waiting for profit realization through a transaction.
The coalition promoting this project is impressive: it includes representatives from the Democratic, Progressive, and Social Democratic parties, as well as the "Rebuilding Korea" association. The Federation of Korean Trade Unions, one of the country's largest public forces, quickly joined the discussion. Their main argument is the need to "reinstate the tax on financial investment income, reduce benefits for the ultra-rich, and introduce additional categories for super-profits," as stated by Federation Director Park Ki-sang.
Precedents and Market Reaction
The financial sector reacted painfully. Share prices of leading companies on the KOSPI collapsed within hours. Panic gripped retail investors, who rightly fear they will be forced to sell off their portfolios to find cash to pay taxes on non-existent income. This is a direct blow to long-term investments and pension savings, which will inevitably trigger a massive capital outflow to other Asian jurisdictions.
It is important to note that this is not the first attempt. Back in the fall of 2025, President Lee Jae-myung tried to lower the capital gains tax threshold, but fierce protests from retail traders erased billions of dollars from the market in a week, and the reform was scrapped. The current initiative goes even further, breaking the very foundation of the financial system.
There is already a worrying precedent in the world: in February 2026, the Netherlands passed a similar law, establishing a fixed 36% tax on unrealized profits from stocks, bonds, and crypto assets. The result was an immediate weakening of local markets and startups. Skeptics are already citing this experience, predicting that South Korea will stifle innovation and see a talent exodus.
Supporters of the new measure insist on its fairness: owners of large assets can afford to pay taxes in advance, while ordinary workers pay from every paycheck. However, in my view, this logic ignores the fundamental principle of liquidity. A tax on unrealized profits is a fiscal instrument that, in volatile conditions, can destroy not only speculators but also conservative investors, creating a risk of cascading sell-offs. The opposition in parliament has already promised to intensify resistance in the coming weeks, and the outcome of this battle will determine not only the future of the Korean market but also set a dangerous trend for all of Asia.