South Korea offers tax breaks to stem won’s sharp decline

The government plans to temporarily cut capital gains taxes in an effort to draw back so-called Seohak ants, South Korean retail investors who invest overseas, into the domestic stock market. It has also intensified verbal intervention, saying the public will soon see the government’s capabilities. After strong pressure on the National Pension Service and export companies failed to halt the won-dollar exchange rate’s rise toward levels seen during the Asian financial crisis, the government has turned to tax cuts as a so-called carrot.

On Dec. 24, the Ministry of Economy and Finance announced a package titled “Tax support measures for domestic investment and foreign exchange stability.” Under the plan, so-called Seohak ants who sell overseas stocks and re

invest in the domestic market for at least one year will be eligible for reductions in capital gains taxes.

Individual investors will also be allowed to purchase foreign exchange hedging products that enable them to buy or sell stocks at predetermined exchange rates, a move aimed at limiting currency risk. The package further includes full tax exemptions on overseas dividend income repatriated by export companies that have accumulated dollar holdings abroad. The use of tax incentives as a tool to stabilize the exchange rate is considered highly unusual.

Despite the government’s broad-based measures, the won-dollar exchange rate rose above 1,484 won the previous day, approaching a new high for the year. The development underscored the government’s determination to defend the currency even at the expense of reduced tax revenue. After pressure on the National Pension Service, export companies and retail investors failed to yield results, authorities effectively shifted to a strategy combining both pressure and incentives.

Earlier that day, Jeong Jae-hwan, director general for international finance at the Ministry of Economy and Finance, and Yoon Kyung-soo, head of the Bank of Korea’s International Department, said in a joint statement that excessive weakness in the won is undesirable. They added that the public would soon see that the steps taken so far were part of broader preparations to demonstrate the government’s strong resolve and its capacity to execute policy, a remark widely viewed as verbal intervention.

Following the announcement of tax measures and the verbal intervention, the won closed at 1,449.8 per dollar in the Seoul foreign exchange market, down 33.8 won from the previous session. The drop marked the steepest single-day decline in nearly three years, the largest fall since November 2022.


세종=정순구 기자 soon9@donga.com