Increasing Dividend Payment

The overseas dividend payment by major South Korean enterprises soared by 75% between 2011 and last year
The overseas dividend payment by major South Korean enterprises soared by 75% between 2011 and last year

 

 

It has been found that overseas dividend payment by major South Korean enterprises soared by 75% between 2011 and last year, led mainly by the National Pension Service’s policy for a high dividend ratio and the government’s policy for imposing taxes on internal reserves. The South Korean government brought in the latter for an economic recovery at first, but a side effect is occurring in the form of money outflow.

The Federation of Korean Industries recently examined the dividend payment by the 100 largest dividend payers in South Korea excluding financial companies and announced on June 1 that their combined cash dividend payment increased by 65% from 8.52 trillion won (US$7.4 billion) to 14.2 trillion won (US$12.4 billion) between 2011 and 2015 while their combined overseas dividend payment is estimated to have almost doubled from 2.97 trillion won (US$2.58 billion) to 5.21 trillion won (US$4.53 billion).

The announcement shows that the taxation policy the government adopted last year did result in a rapid increase in overseas dividend payment as previously predicted by many. The National Pension Service did its part as well with the high dividend ratio policy, putting pressure on companies to pay more dividends while claiming that their accumulation of internal reserves for future investment and M&A led to a scarcity of dividend payments.

These days, investment by the corporate sector is continuing to decline unlike the government’s previous expectations. According to the Bank of Korea, the rate of increase in the 100 enterprises’ capital expenditures on a quarter-on-quarter basis began to plummet in the fourth quarter of 2014 and reached -5.9% in the first quarter of this year. Under the circumstances, an increasing number of economic experts are arguing that the government’s tax imposition on corporate internal reserves should be given a second thought.

 

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