Gov't to exempt foreigners from bond investment taxes

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SEOUL, Feb. 26 (Yonhap) -- The government plans to exempt foreigners from
interest income and other taxes on their investment in state bonds in an effort
to stabilize the currency market, a senior official said Thursday.

"Foreign investors in state and currency bonds will be exempt from interest
income and capital gains taxes," Vice Finance Minister Hur Kyung-wook told a
press conference. "A related bill will be submitted to parliament by April."
Hur said that the tax breaks for foreigners are in line with global standards,
saying that most member countries of the Organization for Economic Cooperation
and Development exempt foreigners from taxes on interest income.
According to recent data, foreign investors held around 38 trillion won (US$25
billion) worth of local bonds. Currently, they have to pay 14 percent of gains
earned from their bond investment here.
The envisioned tax break is among measures aimed at easing a liquidity crunch by
inducing a greater influx of foreign capital. Recently, rumors have been
spreading that foreigners could pull their money out en masse, making banks
unable to pay back debts amid a worsening dollar shortage.
South Korea's currency has been hit hard by the global financial turmoil, with
the won falling to a near 11-year low against the U.S. dollar on Thursday.
"Anxiety over economic conditions at home and abroad are intensifying volatility
in the local foreign capital market with some predicting a deterioration down the
road," the vice minister said. "Still, concerns over a foreign liquidity crunch
are mostly driven merely by various theories and rumors."
"The government will take preemptive action to stem things from worsening and
stave off unnecessary market jitters," he added.
In a related move, the government said that it will also considering offering tax
breaks on investment by Korean nationals residing overseas.
If they buy unsold new apartments here this year, they will have capital gains
tax reduced or exempted when selling the property within five years, a benefit
also to be applied to local residents, Hur said.
The move is intended to help induce a capital influx into the struggling
construction sector, squeezed by reduced demand for apartments and tightening
credit conditions amid an economic downturn.
As of the end of November, there were roughly 163,000 unsold homes across the
nation, higher than the 103,000 reported a decade ago when the nation was hit by
the Asian financial meltdown.
kokobj@yna.co.kr
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