Companies Regurgitating Taxes After Trusting the Government

Tax Benefits to Continue Despite Job Cuts
Government Reverses Position Amid Ruling and Opposition Fairness Debate
Two Years' Worth of Tax Credits Must Be Paid at Once
Trust in Government Policy Erodes, Burden Falls on Companies

[Asia Economy Reporter Jang Sehee] A fiasco occurred when a boldly announced government policy was twisted during the National Assembly's deliberation process, forcing a hurried revision. The government had decided to maintain tax benefits for companies that reduced employment due to the COVID-19 crisis, but when the ruling and opposition parties raised concerns about fairness, the policy was completely reversed. It is considered unusual for a government revision to not just supplement but completely overturn the original plan. Companies that reduced employment due to difficult circumstances had relied on the government policy but now face having to return the tax benefits they had received. The policy’s credibility is being questioned as it was reversed within just two months.

According to the National Assembly on the 19th, the Ministry of Economy and Finance submitted an alternative amendment to the Restriction of Special Taxation Act to the Tax Subcommittee of the National Assembly’s Planning and Finance Committee. Instead of withdrawing the tax credit for companies that reduced employment, the amendment proposes a one-year deferral. It includes provisions that if employment this year does not maintain the 2019 level, companies must pay the tax credit amount corresponding to the reduced number of employees, but considering the difficult business conditions due to COVID-19, the payment will be deferred for one year. Financial support such as employment retention subsidies will also be suspended during the remaining period.

As a result, companies that reduced employment this year will face the burden of paying the tax credit amounts for the reduced employees over the past two years all at once next year.

This contradicts the 2021 Economic Policy Direction announced at the end of last year. At that time, the government announced that it would exempt companies that reduced employment last year from post-management such as reclaiming tax credits for the reduced number of employees to ease their burden.

The Ministry of Economy and Finance’s change of stance came after strong opposition from both ruling and opposition parties at the Tax Subcommittee on the 17th. Assemblyman Choo Kyung-ho of the People Power Party said, "If companies that have struggled to maintain employment and those that have not receive the same tax benefits, the market momentum that is struggling to maintain employment may worsen."

Assemblyman Kim Ju-young of the Democratic Party also stated, "It is not appropriate to support companies that reduced employment with tax benefits during difficult times," adding, "The overall direction should be to increase employment."

The reversal of the original plan during the National Assembly’s deliberation process has also damaged trust in the government policy. A Ministry of Economy and Finance official acknowledged, "The policy was established considering that the COVID-19 crisis last year was an unforeseen special situation, but there is a fairness issue between companies that maintained employment and those that did not," while emphasizing, "For the credibility of government policy, it must be passed."

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