Finance Minister Choo Kyung-ho speaks during an event in New York on Oct. 12, 2022, in this photo released by the Ministry of Economy and Finance.
WASHINGTON/SEOUL, Oct. 16 (Korea Bizwire) — South Korea plans to begin exempting taxes on interest income and capital gains from foreigners’ investment in government bonds this week, in line with efforts to cope with the volatility in the foreign exchange market, the finance ministry said Sunday.
“The measures were needed amid the lingering volatility in the financial and foreign exchange market,” Choo said during a meeting with reporters in Washington on Friday (U.S. time).
He was visiting Washington to take part in a handful of events, including the Group of 20 meeting of finance chiefs and central bankers.
Under the plan, the government will exempt taxes on interest income and capital gains for non-residents and foreign companies’ investment in Treasuries and monetary stabilization bonds starting Monday.
South Korea earlier planned to implement the exemption in 2023. The faster-than-expected move apparently came as the Korean won continued to dive against the greenback throughout this year, dipping around 16 percent so far.
“As South Korea was listed on the watchlist for the WGBI, we also need to speed up measures to attract foreign investment to the bond market,” Choo added.
The WGBI refers to the World Government Bond Index (WGBI) operated by FTSE Russell, which is a broad index designed to measure the performance of government bond markets, including local currencies and sovereign bonds of major advanced nations.
South Korea believes that the move will help in stabilizing the foreign exchange market by inviting more dollars and lowering bond yields.
Choo, meanwhile, did not comment on the issue of a currency swap deal with the U.S. but pointed out that the two countries have already agreed to beef up liquidity facilities should financial market routs around the globe deepen.
“The U.S. is showing strong trust in South Korea. If there’s a problem, we are ready to implement measures to add liquidity. This is a comprehensive and reliable promise made to each other,” Choo added.
Choo added he had a discussion with U.S. Treasury Secretary Janet Yellen on the U.S. Inflation Reduction Act (IRA) during his stay in the U.S., with the two countries agreeing to continue consultations on the matter.
The IRA centers on giving tax credits only to electric vehicles assembled in North America. South Korea has been expressing concerns it may act as a significant trade barrier for Korean carmakers.
(Yonhap)
