Tax rate on big firms’ cash holdings set at 10%

By Korea Herald
  • Published : Aug 6, 2014 - 21:23
  • Updated : Aug 6, 2014 - 21:27
Conglomerates or individual companies with 50 billion won ($48 million) or more in total equity will face new taxes if they fail to spend enough on new investment and salaries, the Finance Ministry said Wednesday as it announced a set of tax reforms designed to funnel more corporate funds into households and ultimately stimulate the economy.

The ministry also said it would lower the tax rates on dividend income in efforts to inflate the amount of disposable income for local households.

These revisions will be submitted to the National Assembly by Sept. 23 for approval. Once it is approved, the revisions will go into effect in 2017, the ministry said.

“The key purpose of the revisions is to provide a warning for the market (to increase spending) and boost the economy,” said Joo Hyung-hwan, the nation’s first vice minister in charge of tax and finances.

He added that higher tax revenue was not the real goal. This is why small and medium-sized companies will be excluded from the taxability list, even if they meet the 50 billion won equity prerequisite, according to the ministry.

Despite the government’s claims, there is no doubt that it would rake in more tax revenues from the latest revisions as a 10 percent tax would be slapped on companies that fail to spend a government-set amount of corporate income on investment, salaries and dividends. Corporate income refers to a company’s net profit for the year minus corporate tax payments and other reserves required under the commercial law.

The government expects that the new tax code, which includes streamlining tax regulations, would result in 568 billion won in additional tax revenue.

The government is to collect 968 billion won more in taxes from high-income earners and large companies under the latest tax revisions, while it could cut the tax burden on low- and mid-income earners and small businesses by about 489 billion won, according to the ministry.

The tax code revisions come after the new Finance Minister Choi Kyung-kwan said he would tackle the issue of cash reserves at local corporations.

Industry data showed that the country’s top 10 business groups had 515.9 trillion won in their coffers at the end of the first quarter of this year, almost double what they had five years ago.

Business organizations, however, have expressed concerns that the extra tax may intimidate the industry, calling for the rate to be kept at a minimum level.

By Bae Hyun-jung and news reports