Finance ministry renews calls to reform corporate tax policy

December 12, 2022

SEJONG, Dec. 13 (Yonhap) — South Korea’s finance ministry on Tuesday renewed its call for corporate tax reform that centers on simplifying the taxation bracket and cutting taxes for large-sized firms amid the simmering tensions at the parliament over the bill’s passage.

The government and the ruling People Power Party have been pushing to lower the maximum tax rate to 22 percent to attract more investment in South Korea, while the main opposition demands to keep the current rate of 25 percent for earnings above 300 billion won (US$230 million).

Currently, South Korea applies four different tax rates ranging from 10 percent to 25 percent. The government plans to simplify the bracket to three and lower the ceiling to 22 percent.

“Even international organizations, such as the IMF and the OECD, advise to lower the top tax rate for companies and simplify the tax base,” the Ministry of Economy and Finance said in a statement, referring to the International Monetary Fund and the Organization for Economic Cooperation and Development.

“Among the members of the OECD, 24 countries, including the United States, have only one tax rate, and 11 countries, including Australia have two,” the ministry said. “Only South Korea and Costa Rica have a four-bracket system.”

The ministry said major countries are simplifying their corporate tax, as the progressive tax rate of multiple steps hinders growth and investment and induces companies to seek unnecessary split-offs to avoid higher taxes.

South Korea’s top corporate tax rate already hovers above the OECD average of 21.2 percent, the ministry added, pointing out its Asian rivals, such as Hong Kong and Singapore, hold comparable figures of 16.5 percent and 17 percent.

“Amid the reorganization of the global supply chain, countries are sparing no effort to attract global firms in strategic industries, such as chips and electric vehicles, by offering subsidies, tax deduction, lower corporate tax, and free land lease,” the ministry said.

The proposed tax reform will help local businesses compete with overseas rivals on a “level playing field,” it added.

South Korea collected 99.8 trillion won in corporate taxes in the first 10 months of this year, up 48.4 percent on-year on the back of improved corporate earnings.

In 2021, the total amount of corporate taxes jumped 26.8 percent on-year to 70.4 trillion won. Among them, Samsung Electronics Co. paid the largest amount of 13.4 trillion won in corporate taxes, up 35.3 percent from a year earlier, market data showed.

The country’s top carmaker, Hyundai Motor Co., paid 2.2 trillion won in corporate taxes in 2021, a sharp hike from just 168.7 billion won tallied a year earlier on improved earnings.