Foreign investment in Korea surged after legislators in May of last year abolished the 20% tax on capital gains of bonds and 14% tax on interest income. Due to the fear of rising currency value, the National Assembly looks to implement similar laws to those that were abolished. Two legislators submitted bills; one includes the allowance for government to stabilize the market on a 'need only' basis by giving it the power to lower the tax down to 0%.
South Korea, considered an emerging economy, must monitor its cash inflows carefully to prevent volatility in capital flows. In addition to this risk, it also poses the threat of asset price bubbles and inflation. It should also be noted that the actions taken within Korea could also directly affect other countries as well, for the US dollar is being driven down in the world economy, pushing investments to influx in other countries.
The Ministry of Strategy and Finance stated that it must slow the inflow of 'hot money' by re-implementing a tax. It regarded this tax as, "..appropriate to mitigate the risk of excessive volatility in capital flows, given the rapid increase in foreign investment in Korean bonds."
Decisions on whether any laws are implemented will not be seen until a future undeclared date. It is likely that one of the two submissions will pass based on the tax bond discussions financial authorities had in June.
