COVID-19 Worsens Income Polarization... Former Chief Kim Nakhoe Proposes Introduction of 'Reverse Income Tax'

Chairman Jeong Manki: "What the people truly want is not free income but fair compensation for work done in desired jobs"
Opinions pour in on tax reform including corporate tax cuts, expanded investment and R&D tax credits, and abolition of vehicle acquisition tax

Jeong Manki, Chairman of the Korea Industrial Federation Forum, is applauding at the '9th Industrial Development Forum and 13th Automotive Industry Development Forum' held on the 25th at the Automobile Hall in Seocho-gu, Seoul. Photo by Mun Honam munonam@

[Asia Economy Reporter Kim Hyewon] Amid worsening income polarization between social classes due to COVID-19, voices from the business community have emerged advocating for the introduction of a Negative Income Tax (NIT). At the 9th Industrial Development Forum and the 13th Automobile Industry Development Forum held on the 25th by the Korea Industrial Alliance Forum (KIAF) and the Korea Automobile Industry Association (KAIA) under the theme "Current Status, Issues, and Improvement Tasks of Industrial Taxation," former Commissioner of the Korea Customs Service Kim Nakhoe proposed the introduction of NIT to address income polarization and enhance growth potential.

The Negative Income Tax is a tax system proposed by American economist Milton Friedman, which provides a certain level of subsidy to those without income. In the context of Korea, it means providing about 30% of the median income of a single-person household (1.83 million KRW per month in 2020), up to a maximum of 500,000 KRW per month, to the no-income group, with the payment amount decreasing as income increases. Former Commissioner Kim suggested improving the tax system by absorbing and integrating existing cash benefits for low-income groups such as basic living security livelihood benefits and social security systems like child and childcare allowances into the NIT, while abolishing some currently implemented tax reduction measures. He stated, "Unlike universal basic income, which targets all citizens, NIT targets only certain low-income groups, so the required funding is relatively less. By structuring it so that income increases as people work more, the system can be designed in a way that does not undermine citizens' motivation for achievement or willingness to work."

Former Commissioner of the Korea Customs Service Kim Nakhoe is giving a presentation at the '9th Industrial Development Forum and 13th Automotive Industry Development Forum' held at the Automobile Hall in Seocho-gu, Seoul on the 25th. Photo by Moon Honam munonam@

At the forum, critical remarks were made targeting political moves to introduce a universal basic income system as a response to polarization and low growth. Jung Manki, Chairman of KIAF, emphasized, "What people really want is not free income but to be compensated for the work they do in the jobs they desire," adding, "Rather than tax increases such as raising tax rates, it is necessary to achieve effects similar to tax hikes by enabling companies to generate more profits through regulatory reforms."

Additionally, the business community proposed a package of tax reforms including lowering corporate tax rates to the OECD average level, expanding tax support for facility and research and development (R&D) investments, easing inheritance tax, and abolishing the automobile individual consumption tax. Kang Hogap, Chairman of the Korea Federation of Medium-sized Enterprises, pointed out, "Our tax law provides segmented support differentially according to company size, which inevitably leads to the Peter Pan syndrome where small businesses avoid growing into medium-sized enterprises, and medium-sized enterprises avoid becoming large corporations."

There was also an opinion that the core policy task for economic revitalization after the COVID-19 pandemic is the rational reform of corporate taxation. Professor Kim Woochul of the Department of Taxation at the University of Seoul proposed the introduction of an overseas dividend income tax exemption system and an equity deduction system as solutions.

In his presentation, Professor Kim said, "Our foreign tax credit system does not fully adjust for double taxation on overseas dividend income of domestic companies, causing additional tax burdens during the remittance of dividend income domestically, which leads to excessive retention of funds overseas. The overseas dividend income tax exemption system can contribute to economic revitalization by facilitating smooth domestic repatriation of overseas income through reduced tax burdens during remittance and providing a favorable environment for domestic and foreign investment."

Among the 36 OECD member countries, all except five countries (Korea, Chile, Ireland, Israel, Mexico) have adopted overseas dividend income tax exemption. Professor Kim also proposed the introduction of an equity deduction system that deducts a normal return on equity (applying an interest rate-level yield) from corporate income before taxation to promote corporate investment and vitality.

Kim Sungjin, Executive Vice President of the Korea Display Industry Association (KIAF Steering Committee member), presented major tax difficulties identified by 15 industry groups affiliated with KIAF member companies. Vice President Kim stated, "Despite the inevitability of domestic R&D for global competition, support for large company R&D is very low compared to competing countries," and added, "It is necessary to expand the current tax credit rate of 2% of current expenses to the levels of major competitors such as 10% in the U.S. and 6-14% in Japan, and also broaden the scope of deductions." He further emphasized, "The tax credit rate for new growth source technology R&D costs is low due to the application of the minimum tax, so it is necessary to exclude new growth source technologies from the minimum tax application and significantly expand the applicable technologies."

He also suggested, "To promote investment after COVID-19, a bold expansion and reform of the integrated investment tax credit is necessary," recommending temporary expansion of tax credits for large and medium-sized enterprises with high investment recovery effects, a significant increase in credit rates for small businesses experiencing large investment declines, extension of acquisition tax reductions for private investment projects ending this year, and extension of the reduction of the automobile individual consumption tax.

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