The main gate of Government Complex Sejong, where 13 of the total 18 ministries are located (The Korea Herald)
SEJONG -- The Yoon Suk-yeol administration is expected to slash the maximum rate in corporate tax, which has been set at 25 percent since the previous Moon Jae-in government, remarks from officials including new Finance Minister Choo Kyung-ho suggested.
While some claim cutting down corporate tax is inevitable, as such deregulatory moves could improve the business environment, opponents say it would undermine the country’s fiscal soundness.
In his recent reply to the National Assembly for his confirmation hearing, Deputy Prime Minister and Finance Minister Choo has said that “there is a need to reconsider the high maximum rate in corporate tax in a bid to bolster private sector-led growth and enterprises’ global competitiveness.”
Citing Korea’s high maximum tax rate relative to major members of the Organization for Economic Cooperation and Development, Choo said he “has a steady position on the necessity for the nation to push for a corporate tax cut.”
While he was a lawmaker with the right-wing People Power Party in July 2020, Choo proposed a motion to revise the corporate taxation law, under which the maximum rate would be slashed from 25 percent to 20 percent.
The bill also involved streamlining the number of ranges for taxation in terms of businesses’ earnings from four categories (200 million won ($157,000) or under, 200 milllion-20 billion won, 20 billion-300 billion won and 300 billion won or over) to two categories (200 million won or under and over 200 million won).
The maximum corporate tax, which was 25 percent during the liberal Roh Moo-hyun administration (2003-2008), was slashed to 22 percent in 2009 under the conservative Lee Myung-bak administration (2008-2013), which prioritized being “business friendly.”
The rate was raised again to 25 percent in 2017 under the liberal Moon Jae-in administration (2017-2022).
Though Minister Choo had suggested a “drastic” cut by 5 percentage points to 20 percent, market insiders raised the possibility of a cut by 3 percentage points to 22 percent.
But the incumbent right-wing administration is likely to contemplate the side effects, as a corporate tax cut could certainly have negative impacts on the country’s fiscal status. Corporate tax accounts for about 25 percent of the government’s tax revenue.
Corporate tax revenue is projected to be around 104 trillion won this year, which takes up 26.2 percent of the estimated 396 trillion won in total tax revenue. This would decline by 5.7 trillion won per annum and 28.5 trillion won for the coming five years if the maximum rate was cut to 20 percent, according to an analysis from the National Assembly Budget Office.
As a cut to 22 percent would also inevitably bring about a reduction in tax revenue, policymakers are expected to map out countermeasures before pushing for a revision in taxation law.
By Kim Yon-se (firstname.lastname@example.org