The main gate of the Sejong government complex, where 13 of the 18 ministries are located (The Korea Herald)
While some argue that a corporate tax cut is inevitable because such deregulation moves could improve the business environment, opponents say it would hurt the country’s fiscal strength.
In his recent response to the National Assembly for his confirmation hearing, Deputy Prime Minister and Finance Minister Choo said that “it is necessary to reconsider the high maximum corporate tax rate with the aim of support private sector and business-led growth”. global competitiveness.
Citing Korea’s high top tax rate compared to major members of the Organization for Economic Co-operation and Development, Choo said he “takes a firm stance on the need for the nation to push for a reduction corporation tax”.
While serving as a lawmaker for the right-wing People Power Party in July 2020, Choo proposed a motion to revise the Corporation Tax Act, under which the top rate would be reduced from 25% to 20 %.
The bill also involved streamlining the number of tax brackets in terms of corporate income of four categories (200 million won ($157,000) or less, 200 million to 20 billion won, 20 billion to 300 billion won and 300 billion won or more) to two categories (200 million won or less and more than 200 million won).
The maximum corporate tax, which was 25% under the liberal Roh Moo-hyun administration (2003-2008), was reduced to 22% in 2009 under the conservative Lee Myung-bak administration (2008-2013) , which gave priority to “business friendly”. .”
The rate was raised again to 25% in 2017 under the liberal Moon Jae-in administration (2017-2022).
Although Minister Choo suggested a “drastic” reduction of 5 percentage points to 20%, market insiders raised the possibility of a reduction of 3 percentage points to 22%.
But the right-wing administration in place is likely to consider the side effects, as a corporate tax cut could certainly have negative effects on the country’s fiscal situation. Corporation tax accounts for approximately 25% of government tax revenue.
Corporate tax revenue is expected to be about 104 trillion won this year, accounting for 26.2 percent of the 396 trillion won in total tax revenue. That would drop by 5.7 trillion won a year and 28.5 trillion won for the next five years if the maximum rate were lowered to 20 percent, according to an analysis by the National Assembly Budget Office.
As a reduction to 22% would inevitably lead to a reduction in tax revenue, policymakers should develop countermeasures before pushing for a revision of the tax law.
By Kim Yon-se ([email protected])