Incheon City to Expand Exemptions on Mandatory Bond Purchases for Small Business Owners from Next Year... Interest Rates to Increase

Exemption on Purchase at Contract Increased from 2 Million to 20 Million KRW
Bond Coupon Rate Raised from 1.05% to 2.5%

Incheon City Hall

[Asia Economy Reporter Park Hyesook] Incheon City is easing the burden on citizens by expanding exemptions from mandatory purchases of local development bonds and raising interest rates.

The city announced on the 14th that, considering the increased burden on citizens due to COVID-19 and the rise in the base interest rate, it will implement improvements to local development bonds starting January next year to reduce the burden on small business owners and citizens.

First, the city will raise the purchase target for local development bond contracts from the current KRW 2 million to KRW 20 million. Until now, companies signing contracts with Incheon City for construction, goods, or services worth KRW 2 million or more were required by ordinance to purchase bonds equivalent to 2% of the contract amount.

However, starting January next year, mandatory bond purchases will be exempted for contracts under KRW 20 million. This measure is expected to benefit approximately 25,000 small business owners and self-employed individuals annually with about KRW 4.1 billion in purchase exemptions. Additionally, the elimination of the bond purchase procedure for companies is expected to greatly improve convenience by saving time and costs.

The city also decided to raise the interest rate (coupon rate) on local development bonds from the current 1.05% to 2.5%, an increase of 1.45 percentage points. This is expected to reduce annual immediate sale discount losses by KRW 9.5 billion, thereby lessening the burden on citizens and businesses.

Currently, citizens who purchase bonds and hold them until maturity face interest loss burdens and low interest rates compared to market rates (4-5%), and even when immediately selling bonds, they must bear high discount costs.

Furthermore, the city plans to temporarily exempt the purchase of local development bonds for all newly registered vehicles next year, except for general passenger cars with engine displacement of 2000cc or more.

Also, the exemption regulation for eco-friendly vehicle bond purchases will be extended for two more years until the end of 2024. Accordingly, consumers purchasing electric or hydrogen vehicles are expected to save KRW 2.5 million, and those buying hybrid vehicles will save KRW 2 million.

An official from Incheon City stated, "In a situation where economic burdens are high due to high interest rates and inflation, we expect this system improvement to help citizens and small business owners."

This content was produced with the assistance of AI translation services.