[2021 Tax Revision] 9% Separate Taxation on Interest Income from Government Bonds for Personal Investment... Supporting Asset Formation

Support for Household Asset Formation and Reduced Overall National Debt Interest Costs
Depository Receipts Corporation to Manage Distribution Restrictions and Issuance of National Bonds for Individual Investors

[Asia Economy Reporter Jang Sehee] A special provision will be established to impose a 9% separate taxation on interest income for individual investment government bonds held until maturity. This is interpreted as an effort to support asset formation for ordinary households and to expand the demand base of the government bond market.

The Ministry of Economy and Finance announced the '2021 Tax Law Amendment' containing this content on the 26th.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated at a pre-briefing on the 2021 Tax Law Amendment held at the Government Seoul Office on the 23rd, "In addition to low-income groups, we will establish a special provision for 9% separate taxation on interest income from individual investment government bonds to support asset formation for ordinary households."

Individual investment government bond products are held until maturity for 10 or 20 years, and the principal and interest are received in a lump sum on the maturity date. A low-rate separate taxation of 9% is applied to interest income within a limit of 200 million KRW. The plan is to provide incentives for individuals to invest in government bonds by granting additional interest rates and tax benefits.

However, implementation is only possible if the 'Government Bond Act,' currently pending in the National Assembly, is passed. A Ministry of Economy and Finance official said, "If the Government Bond Act is passed at the regular National Assembly session in November this year, it is expected to be implemented around early next year."

The government expects demand to increase significantly because it offers higher interest than the yield traded in the government bond market and provides separate taxation benefits. In Korea, individuals can freely purchase government bonds, but demand has not been high due to the continued low-interest rate trend.

If the total issuance volume of government bonds decreases, the issuance interest rate falls, resulting in lower overall interest costs for government bonds.

Unlike government bonds issued in the open market, individual investment government bonds are issued outside the open market through designated financial institutions at pre-announced interest rates.

The Korea Securities Depository will handle administrative processing. To prevent market disruption, the transfer or circulation of individual investment government bonds to others is restricted, but inheritance or donation is allowed.

Meanwhile, early redemption against the government before bond maturity is possible, but in this case, additional interest rates and tax benefits do not apply.