The South Korean government is mulling various tax benefits to long-term investors in Kosdaq members to promote the secondary market and narrow its gap with the main bourse.

The government is working on packaging a range of deductions in income and trade taxes and could go as far as exempting taxes for a year for long-term holders of Kosdaq shares, an official at the Financial Services Commission (FSC) said.

The FSC in mid-December will announce a set of measures to stimulate the Kosdaq market that would benefit investors as well as its corporate members, he said.

Long-term stock investors in advanced economies including the United States pay less tax and get bigger annual tax reimbursements with stock investment than other financial instruments.

To stimulate the lethargic market after the bursting of dot-com bubble, Korean authorities for five months from October 2001 allowed a long-term stock investment instrument that promised from 5.5 percent to 7.7 percent in tax deductions in savings of up to 50 million won ($44,819). Investors in the stock product were exempted of income and dividend taxes.

The government is fine-tuning the stimuli measures as benefits going to Kosdaq members could stoke protest from small and mid-sized peers on the Kospi, said a finance ministry official.

Korean shares have been one of the biggest gainers this year among global equities. The Kosdaq, however, still lags far behind the bigger Kospi market in growth and market capitalization. The Kospi as of Tuesday gained 25 percent this year, and the Kosdaq 20 percent. Kosdaq market cap reached a historic high of 265 trillion won, but nevertheless is dwarfed by Kospi that ballooned to 1,641 trillion won.

Kosdaq in recent days have risen sharply upon news of incentives. The Kosdaq index Wednesday ended 1.53 percent up at 768.03 from the previous session.

By Shin Heon-cheol and Lee Ha-yeon

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]