Hankyung Research Institute: "South Korea's Tax Competitiveness Rapidly Weakening... Measures Needed"

[Asia Economy Reporter Ki-min Lee] There have been calls to restore the rapidly weakening tax competitiveness of South Korea in order to revive economic vitality.

On the 8th, the Korea Economic Research Institute (KERI) argued through its analysis report titled "Trends in International Tax Competitiveness and Policy Implications" that South Korea's tax competitiveness this year ranked 24th out of 36 member countries of the Organisation for Economic Co-operation and Development (OECD), placing it in the lower-middle tier. The speed of the ranking decline was the second fastest, indicating an urgent need to secure tax competitiveness.

According to the International Tax Competitiveness Index Report by the US Tax Foundation, which KERI referenced, South Korea's tax competitiveness has been on a downward trend since 2014. KERI added that the increase of the corporate tax top rate by 3 percentage points in 2018, which went against the international trend of easing corporate tax burdens, appears to have contributed to the overall decline in tax competitiveness rankings.

In particular, South Korea's tax competitiveness ranking dropped from 17th in 2017 to 24th this year, a fall of 7 places. This was the second fastest decline after the Netherlands, which dropped 8 places from 9th during the same period.

By tax category, the OECD rankings for competitiveness showed declines of 5 places each in corporate tax (33rd), property tax (30th), and international tax (33rd) compared to 2017, indicating weakening competitiveness.

Looking at the competitiveness of corporate tax components, depreciation and loss carryforward ranked high at 9th place. However, tax rate competitiveness remained low at 28th, and the incentives and complexity rankings were last at 36th place.

The US Tax Foundation cited the strengths of South Korea's tax system as the relatively broad tax base with a low value-added tax rate (10%) and an extensive tax treaty network covering 93 countries. On the other hand, its weaknesses included a limited loss carryforward system in corporate tax and a distorted property tax system (including inheritance tax) that separately taxes real estate and financial transactions.

Choo Kwang-ho, Director of Economic Policy at KERI, emphasized, "While many advanced countries are competitively lowering corporate and income tax rates to enhance tax competitiveness, South Korea, with an economy ranked in the world's top 10, raised its tax rates, which goes against international trends and has led to a weakening of tax competitiveness. We must revive the growth momentum of our economy by strengthening tax competitiveness through lowering rates, broadening the tax base, and reducing complexity, especially in areas with low competitiveness such as corporate tax, international tax, and property tax."

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