Abolition of the SW corporate tax reduction

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Government Announces Special Tax Restriction Act Bill
Impact on the operating result of medium-sized businesses in the metropolitan area in 2016
Industry worries about digital decline

It is expected that the advantage of the 10% corporate tax reduction will disappear for 2,000 software companies (ETI) in the metropolitan area. Medium-sized enterprises in the Southwest are those with sales between KRW 5 billion and KRW 80 billion.

The Ministry of Economy and Finance has issued in advance a legislative notice and opinion on the “Partial Amendment of the Special Taxation Restriction Law (Draft)”, including this information. The amendment covers various clauses which include special taxation for small and medium-sized enterprises (SMEs) such as the revitalization of business investment and balanced regional development, and special taxation for investment promotion and support for business development. ‘use.

However, it imposed an “abolition of the special case of medium-sized enterprises operating knowledge-based industries in the metropolitan area in order to enhance equity between related industries”.

The SW industry demanded an overhaul since the majority of medium-sized SW enterprises are concentrated in the metropolitan area, and will inevitably cause a hit is inevitable.

Article 7, paragraph 1, point 2 (e) of the current law imposes a “10% reduction in corporate tax for medium-sized enterprises that operate knowledge-based industries prescribed by presidential decree in metropolitan area”.

SW development and supply, computer programming, system integration and management, security system service, information service and engineering are some of the knowledge-based industries which are related fields to the SW.

There are 2016 medium-sized SW enterprises in the metropolitan area ranked based on data from the Korea SW Industry Association (KOSA) business report. It is inevitable not to take the impact on SW medium-sized businesses since SW medium-sized businesses account for approximately 80% of all medium-sized businesses (2521) and 20.7% of SW businesses in the metropolitan area (9716), if the special tax exemption is removed.

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KOSA revealed that the global average profit rate was 4.3% and that of IT service companies was very low at 2.7% from a survey result of operating profit rate of 500 medium-sized SW companies. There were fears that the corporate tax would increase by 11% and the operating profit margin would decline due to the removal of special taxation.

SW companies asked to examine the current state of the SW industry’s importance and operating profit ratio before equity. Their position is that continued support is needed to ensure the competitiveness of the SW industry, which is the foundation of national competitiveness in the era of great digital transformation.

KOSA said: “The abolition of special taxation may lead to a decrease in the competitiveness of SW medium-sized enterprise industry and a deterioration of the base of SW national industry. We request consideration by relevant ministries to ensure that medium-sized companies in the knowledge-based industry can be protected by maintaining special tax exemptions.

The knowledge-based industry includes not only software, but also telecommunications, R&D, film/video and broadcast program production, professional design activities, audio publishing, and original recording activities. Advertising businesses include advertising copy, design, design, writing as well as magazines and other print publishing, creative, and art-related services.

There are growing concerns that the impact will spread to various industries as tax advantages for telecommunications, broadcasting and medium-sized content-related businesses disappear in the metro area.

The Ministry of Economy and Finance plans to initiate legislative steps in discussion with the Regulatory Reform Committee and the Ministry of Government Legislation.

Proportion of SW Enterprises in Seoul Metropolitan Area and Other Regions (Unit: Units)
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By staff reporter Hocheon An ([email protected])

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