Exempting domestic currency government bonds from withholding tax is long overdue in much of South and East Asia as the move would have a significant and beneficial economic impact.
The mature economies in Europe and North America and also Japan, Hong Kong and Singapore no longer withhold tax on government bonds. This is the case for about 40 countries representing 90% of internationally held government bonds. However, across swathes of South and East Asia notably India, Indonesia, South Korea, the Philippines and Taiwan the withholding of tax is still prevalent.
Taxing government bonds increases the cost of borrowing for governments in three ways