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[Editorial] Optimal level

Consensus needed on level of corporate tax rate

Rival parties are poised to clash over corporate tax levels during the plenary session of the National Assembly, which will run through this December. The issue came into the spotlight during the parliamentary audit, which ended Friday.

The former President Lee Myung-bak administration slashed the highest corporate tax rate from 25 percent to 22 percent, and President Park Geun-hye has kept it untouched in line with her commitment to provide welfare without tax hikes. The ruling Saenuri Party also supports the lower corporate tax level, citing worsening business environment.

But the main opposition Minjoo Party of Korea and the splinter People’s Party insist on corporate tax hikes, arguing that a shortage of tax revenue is hurting fiscal health and straining welfare budgets.

The easing of corporate tax burden helps to expand investments in facilities, which contributes to gross domestic product growth. It could also allow businesses to hire more employees.

Since 2008, the two conservative leaders have prioritized growth over distribution, dismissing calls to raise taxes on conglomerates and high-income earners. This has resulted in a shortage of funds for welfare programs. 

One of the steps the incumbent government has taken to make up for the revenue shortage is raising taxes on cigarettes. Critics say that the government is only targeting consumer taxes charged on individuals to improve the fiscal balance.

The Park administration needs to revise this approach while taking caution not to undermine ailing sectors, such as shipbuilding and shipping, which are undergoing heavy restructuring.

There is also an urgent need for the government to seriously fine-tune the 2017 tax code, which was unveiled in late July.

The tax code revision reflects policymakers’ efforts to maximize the effect of the government-led extra budget worth 11 trillion won ($9.7 billion). The tax code revision also aims to ease the tax burdens of the corporate sector.

Under the scheme, businesses that make research and development investments in 11 selected new industries, such as smart cars, biomedical technologies and renewable energy, will be granted tax credits of up to 30 percent, up from 20 percent.

The government also plans to offer 10 percent tax credit for facility investments into those areas. The cultural content industry will also get expanded tax benefits, with movie and TV drama producers being offered a 10 percent tax credit on production costs.

It would be desirable if the benefits of the tax code revision are extended to more industrial sectors, small and mid-sized enterprises as well as financially distressed sectors.

Park and the ruling party have continued to claim that the nation should map out countermeasures against the rapidly aging society, low birthrate and deepening polarization.

The most effective countermeasures would be to secure state funds by expanding the taxation base. They could also consider raising taxes on conglomerates with sizable profits and the nation’s wealthiest individuals.

It should be noted that the ratio of national debt to GDP will increase by 3 percentage points to reach 41 percent in 2017. The government and the major political parties need to work together to find the best possible tax policy for the nation.