SEJONG, South Korea - South Korea plans to allow financial institutions to sell a new savings product eligible for steep tax advantages from next year to help improve household finances, the government said on Thursday.
It also plans to offer a tax incentive to companies hiring young people aged between 15 and 29, the finance ministry said in a statement covering annual revisions of the tax code.
The schemes are still subject to parliamentary approval.
The Ministry of Strategy and Finance said it plans to introduce individual savings accounts (ISA) from next year to enable South Korean savers accumulate more wealth in an environment of record-low interest rates.
The accounts enable savers to place financial products including cash deposits, funds and stock investment accounts into one basket, the income from which will later be eligible for lower taxation than currently levied.
ISA owners will be required to maintain the accounts for at least five years, after which they will be taxed 9.9 percent of the net income made beyond 2 million won (S$2,360) from the combined products. Accounts that return less than 2 million won will not be subject to tax.
Currently, South Koreans are taxed at 15.4 percent on income from investment products.
South Koreans aged 15 to 29 will be able can cash out their ISAs after three years, according to the finance ministry. Those who decide to cash out before the obligatory three-year or five-year subscription period will not be eligible for the lower tax rate.
All subscribers will be subject to an annual subscription limit of 20 million won and they are free to switch products within the accounts. Once parliament approves the revised tax code later this year, South Koreans will be able to apply for ISAs starting 2016.
The finance ministry also proposed a new tax advantage for companies that actively hire young workers. South Korean firms will receive tax cuts of 5 million won for every eligible newly-hired worker after the tax code is approved.
Companies categorized as conglomerates, or chaebol, will receive 2.5 million won worth of tax exemptions per worker, according to the ministry. The law will be in place for three years.
The government also revised an existing law that reduces income tax for young workers employed at small- to medium-sized businesses in South Korea, changes for which will also be applicable for 3 years.
South Korea's youth unemployment is currently at levels unseen since the early 2000s. It stood at 10.2 percent in June, compared to 3.9 percent for the general working population.
The revisions come after the South Korean government and major local industry associations agreed to create some 200,000 jobs for young people until 2017, ahead of an expected period of job scarcity.
The finance ministry said it aims to hand in this year's tax code revision to parliament by Sept. 11.