72% of SMEs Oppose Taxation on Excess Retained Earnings

"No policy consideration such as including productive industries in the tax base, and no treatment as potential tax evaders"
Results of the 3rd opinion survey of SMEs on excess retained earnings taxation

Reasons Why Small and Medium Enterprises Oppose the Excess Retained Earnings Tax.
[Image=Korea Federation of SMEs]

[Asia Economy Reporter Kim Jong-hwa] It has been revealed that 72% of small and medium-sized enterprises (SMEs) still oppose the government's supplementary measures on excess retained earnings taxation, drawing attention to whether the government will prepare additional countermeasures.

The Korea Federation of SMEs conducted the "3rd Opinion Survey on Excess Retained Earnings Taxation for SMEs" from the 4th to the 13th of this month, targeting 304 unlisted SMEs, and the results were compiled accordingly.

In the first survey results announced by the Federation in August, 61.3% opposed the taxation, and in the second survey last month, opposition increased to 90.2%. In response, the government announced supplementary measures on excess retained earnings tax on the 29th of last month, and in the third survey conducted afterward by the Federation, opposition decreased by 18.2 percentage points to 72%.

The biggest reason SMEs opposed the tax was that "there is no policy consideration, such as productive industries being included in the tax base (42.5%)." This was followed by responses such as "SMEs are viewed as potential tax evaders without considering their realities (24.2%)" and "Measures to prevent tax evasion or loopholes through the National Tax Service should be prioritized (17.8%)."

The preferred retention period for retained earnings among SMEs was mostly "less than 5 to 7 years (37.3%)" and "10 years or more (23.9%)," and 66.1% of the companies opposed the government's taxation policy that allows only up to 2 years of retained earnings.

Additionally, 53.3% of SMEs were negative about the plan to exclude only certain industries requiring policy support, such as venture companies, from the tax base, but 73.4% supported the plan to exclude amounts reserved for investment, debt repayment, employment, and R&D expenditures from retained earnings.

The "industries requiring policy support" proposed by the Ministry of Economy and Finance must be specifically stated in the law to be excluded from the tax base. However, SMEs participating in the survey showed somewhat less opposition, expecting that general industries such as traditional manufacturing would also be excluded from taxation.

Regarding the National Assembly, 58.9% of companies suggested "implementing the government's taxation policy but improving issues through legislative bills in the National Assembly," while 29.3% took a strong stance, saying "excess retained earnings taxation has many side effects and must be abolished."

As alternatives proposed by SMEs, there were suggestions such as "raising the appropriate retained earnings standard (37.5%)," "the National Tax Service should detect tax evasion companies rather than legislating taxation (35.5%)," and "taxation should be imposed as corporate tax on companies, not as dividend income tax on shareholders (13.8%)," emphasizing the need for measures to reduce damage to honest SMEs.

Kim Ki-moon, Chairman of the Korea Federation of SMEs, said, "It is positive that the government has partially supplemented the excess retained earnings taxation policy by collecting SME opinions, but there are still many calls for withdrawal of the bill in the SME field," adding, "It is appropriate to withdraw the excess retained earnings taxation policy that hinders corporate growth and stifles entrepreneurial spirit."

Chairman Kim also emphasized, "If the introduction of the system is inevitable for reasons such as improving tax fairness, additional supplementation is needed, such as excluding productive industries with significant job creation effects like manufacturing from the tax base and extending the retention period allowed for retained earnings from 2 years to at least 5 to 10 years."

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