Suffering for doing their dutyThe water sports season is back, but there is little activity at the yacht clubs and marinas up and down the Han River. Most of the sailboats are docked amid algal blooms and some have “for sale” banners on them. A few boats can be seen on the river on weekends, but that can hardly be of any help to the yacht club business.
For many reasons, yachting is shunned here. It is considered a luxury sport that draws suspicious eyes and unwanted tax investigations.
The rich remember being hit by a tax bombshell when they bought luxury cars decades ago. The government’s offer of measures to stimulate investment overseas as a so-called solution for exporters fighting a strong currency brings back that bitter memory.
Under those measures, anyone investing in overseas funds, real estate or even mergers and acquisitions would be exempt from the complicated procedures involved in reporting to the authorities and paying taxes. Procedures on foreign exchange transactions would also be eased. The move is designed to lure funds piling up in safes at homes and companies to go overseas in the hopes of bringing down the won’s value, which has been appreciating at dangerous levels. Dollars are, in fact, flooding us.
The black figures on the current-account balance reached $31.6 billion in April and was the 38th straight month of surplus. The won’s gains against the U.S. dollar are third-biggest among 32 major currencies. Exporters struggle with the won’s steep rise. Outward investment has been lagging. Capital investments abroad are 17.9 percent of gross domestic product, sharply lower than the 47.1 percent average in advanced countries and even under the 18.7 percent average in developing countries. Overseas investment could be effective in bringing down the won’s value without the government interfering in the market or the central bank printing money like the United States and Japan have done.
But despite government encouragement, companies are barely stirring. They have seen how much-hyped overseas resource development projects led by the previous administration ended up as the targets of prosecutorial probes.
Executives in both public and private enterprises who got into overseas resource projects at the government’s invitation have been summoned by prosecutors, while their companies were wrecked by tax probes and bad publicity. The scene is all too familiar for local businessmen.
One large company owner twitches at the mention of overseas investments. His company raised a multi-million-dollar fund in Silicon Valley to seek out new businesses early this year.
As soon as he reported the investment, affiliates of the group were visited by tax officials. The government offices often work out of sync, and it is the companies that end up paying the price.
In order for overseas investment measures to succeed, all government offices must be engaged and they must be supplied with details so that they will stay out of the way. The Korea Investment Corporation should pave the way.
The state corporations must prove that the measures can work and last. A separate government organization must be devoted to support overseas investments. It must fully explain the guidelines on overseas investment until companies are fed up hearing about them.
Most of all, government offices must be fully aware of the measures so that they can be consistent and persistent in promoting such investments. Companies must be assured that they need not worry about their investments when a new administration comes in. They are not dumb enough to believe the incumbent administration and invest, when a few years later they know they will probably be summoned by prosecutors or the Assembly a few years later on charges of taking jobs and money overseas.
JoongAng Ilbo, July 14, Page B8
*The author is the industry news editor of the JoongAng Ilbo.
by Pyo Jae-yong