South Korea’s decision to lower the tax rate on securities transactions by 0.05 percentage point is set to take effect on Thursday, with the financial sector divided on whether it will successfully stimulate the market.

Tax levied on stocks listed on the nation’s main bourse Kospi will be cut down to 0.1 percent from the previous 0.15 percent. Stocks on the secondary tech-heavy Kosdaq will be traded at the rate of 0.25 percent instead of the previous 0.3 percent.

The rate for third-tier Konex will be shed more, to 0.1 percent from 0.3 percent while K-OTC or over-the-counter financial market will also shed 0.05 percent, to 0.25 percent from 0.3 percent. 

The Ministry of Economy and Finance said last month that the tax cut will take effect on June 3, but the Korea Securities Depository added earlier this week that the new rule will be applied to all stocks traded Thursday.

The KSD explained that it took the “three-day settlement rule,” into consideration, which requires investors to submit payments on stock trades no later than three business days after the trade is executed. Thursday is three business days before June 3.

But there is skepticism on whether the tax cut will actually revive the stock market. Experts recall the time the tax rate was reduced to 0.45 percent from 0.5 percent in 1995, when the volume of transactions spiked temporarily, but fell back to its pre-tax-cut level in merely 5 months.

Currently, the transaction tax is imposed regardless of whether an investor logs a profit or loss.

By Jung Min-kyung (mkjung@heraldcorp.com)