Government Says "More Serious Than Financial Crisis"... Missing Corporate Tax Cut Card

Financial Crisis Eased Corporate Cash Flow with Tax Cut Policies
Tax Rate Reduction Leads to Minimum Trillion-Won Scale Revenue Decline

[Image source=Yonhap News]

[Asia Economy Reporter Jang Sehee] The Moon Jae-in administration's economic team analyzes the COVID-19 pandemic as more severe than the 2008 financial crisis, but still maintains a negative stance on the corporate tax cut measures implemented during the financial crisis.

According to the Ministry of Economy and Finance on the 23rd, the government is not considering corporate tax cuts as part of the COVID-19 response measures. A ministry official stated, "The position that there is no need for corporate tax reform has not changed," adding, "During the 2008 financial crisis, the reduction of corporate and inheritance taxes was part of the bold tax cut policies pursued in the first year of the Lee Myung-bak administration." Instead, the ministry expects that expanding the limit on entertainment expenses and broadening tax support for returning companies will have the effect of lowering corporate taxes.

During the financial crisis in November 2008, the government announced the 'Comprehensive Measures to Overcome the Economic Crisis,' which included corporate tax cuts as part of tax reduction plans aimed at job creation and strengthening growth engines. At that time, the government lowered the corporate tax rate from 13% to 10% for companies with operating profits of 200 million KRW or less, and from 25% to 20% for companies with profits exceeding 200 million KRW but not exceeding 20 billion KRW.

The current corporate tax rates are 10% for taxable income up to 200 million KRW, 20% for income exceeding 200 million KRW up to 20 billion KRW, 22% for income exceeding 20 billion KRW up to 300 billion KRW, and 25% for income exceeding 300 billion KRW. Among the 34 OECD countries, South Korea ranks 3rd in the proportion of corporate tax revenue to total tax revenue and 6th in the proportion of corporate tax revenue to nominal GDP, placing it among the top ranks.

The Ministry of Economy and Finance is concerned that lowering corporate tax rates would result in at least a 'trillion KRW-level tax revenue decrease.' Given the government's expansionary fiscal policy and ongoing increase in fiscal spending, a shortfall in tax revenue could deal a fatal blow to national debt.

There are also calls to significantly expand the scope and duration of corporate tax payment deferrals. According to the National Tax Service, tax payments for self-employed individuals in sectors such as food and accommodation affected by COVID-19 will be deferred for up to nine months. Compared to Japan, which is currently considering deferring corporate tax payments amounting to over 100 trillion KRW for one year, this scale is insufficient.

Professor Yang Jun-mo of Yonsei University's Department of Economics said, "If corporate tax cuts are difficult, at least the payment of last year's corporate taxes due by the end of this month should be deferred." He pointed out, "Within a month or two, companies in the airline and hotel industries may go bankrupt," adding, "A large-scale unemployment could occur due to structural adjustments across industries."

This content was produced with the assistance of AI translation services.