South Korea abolishes taxes on foreigners’ income from bonds to attract new investment
As TopForex.trade reports, The South Korean government removed taxes on foreigners’ income from investments in treasury bonds and monetary stabilization bonds on October 17 to encourage foreign investment and stabilize the exchange rate.
Speaking to reporters in the United States on Saturday, October 15, following a meeting of G20 finance ministers and central bankers, Korean Finance Minister Choo Kyung-ho said the government had decided to push back the planned tax repeal from 2023 to this week to encourage capital inflows into the local bond market.
Back in July, South Korea unveiled a tax reform plan containing such tax breaks for non-resident foreigners and corporations in the country. At first, the government wanted to put it into effect from January 2023 after the National Assembly passed the bill.
But in a situation where the South Korean currency is weakening, as well as against the backdrop of a slowdown in lending to the economy and large losses in the stock market in Seoul, as well as an increase in the rate for the eighth time in a row to 3% (+0.5%) to support the country’s currency, the government decided to revise the implementation ordinance in order to ensure tax benefits as soon as possible.
Overall, the Korean Won has not performed well among Asian currencies over the past six months, losing 17% against the dollar over the period.
The ordinance introduced varying tax rates that differ depending on the number of profits and income in respect of Korean treasury bonds held by foreign investors. The government also included cash stabilization bonds and removed tax rates.
With financial markets around the world remaining volatile, Korea is keen to attract new foreign investments as quickly as possible.
Meanwhile, FTSE Russell, the global index provider, said on September 30 that it had added South Korea to the list for possible inclusion in its Worldwide Government Bond Index (WGBI).
According to FTSE Russell, the listing follows announcements of several initiative proposals by South Korean market authorities that aim to improve the market structure and accessibility of South Korean capital markets.
Meanwhile, South Korea announced the need to support the stock market with liquidity
The South Korean KOSPI stock index closed trading on October 13 with a decrease of 1.8%, thereby increasing the losses in the currency of this country (the South Korean won) to -27.36% since the beginning of the year. Although on October 14 it added 1.36% and closed at 2249.95 points, on October 18 it was up 1.36% and closed at 2249.95 points.
If we talk about the decline in the market in dollar terms, then in almost nine and a half months it reached 41%. At the beginning of October, information came from the Bank of Korea according to which, as of the end of September, the total amount of bank lending to individuals fell in annual terms for the first time since 2004, losing 1.2 trillion won. This happened against the backdrop of a tightening of monetary policy by the regulator: over the past 14 months, the percentage level has been raised by 2.5%.
The country’s central bank has taken such steps in an attempt to cope with rising inflation and effectively manage the process of changing the large household debt that is fixed in the fourth-largest economy in the Asia-Pacific region. Despite the increase in the percentage level, the US dollar exchange rate in Seoul has grown by 19.4% against the South Korean currency since the beginning of the year.
At the same time, signals began to come from the South Korean government about the need to support the stock market with liquidity. Given the situation with lending, we are talking about a significant quantitative easing of monetary policy.
Nevertheless, Asian stock exchanges rise after the US markets
Markets in the Asia-Pacific region have taken over the momentum. As of the morning of October 18, the Hong Kong Hang Seng index rose by 1.33% and is trading at 16,835.26 points. Japan’s Nikkei 225 rose 1.42% to 27,156.07, while the Topix 500 rose 1.15% to 1,476.69.
The Chinese authorities have postponed indefinitely the publication of China’s financial indicators for the first three quarters of 2022, scheduled for October 18, including GDP data. Earlier, the General Administration of Customs of China was supposed to provide data for September on the volume of foreign trade as well as trade with other countries, but the information was not published.
