Stock Savings Options on Either Tax Deduction or Principal Guarantee

The newly released stock savings will be an optional product that the investor chooses either 5 percent tax deduction at the end of the year or guarantee of the investment loss at the time of maturity.

The preservation of the principal will be applied to the amount for which the investor paid tax such as income tax. Unlike the existing stock savings, the investors won`t be able to choose the items for investment, rather they are allowed only indirect investments, for example, stock beneficiary certificates or mutual funds.

The Ministry of Finance and Economy decided the draft of `a plan for the introduction of new stock savings` yesterday and will announce the bill after confirming it at the trilateral policy committee today.

An authority of MFE explained ``the Ministry considered the double benefits of the tax deduction and the principal guarantee. However, it was indicated that such benefits might bring about serious moral hazard of the stock investors and the policy authorities. The customers will choose either they will benefit tax deduction or preservation of the principal.``

However, since the principal guarantee will be applied only for the amount that the customer paid taxes, the principal may not be guaranteed when the loss is enormous. The Ministry will sell this product temporarily until the end of this year but, if customers` response is positive, the period may be extended.

The maximum amount of the stock savings is set as 30 million won and there is not limit for the application. The product is especially beneficiary for the taxpayers including laborers and the self-employed. The ratio of the stock investment will be over 50 percent as for the aggressive investment products.

Lee Yong-Sup, director of Tax and Customs Office, remarked ``[the Ministry] judged that the tax return for the loss of the investment is technically possible and the details of the bill are subject to change in the process of the negotiation between the ruling and opposition parties.``

yhchoi65@donga.com