No Use of Imported Goods or Move-in... No Investment Performance Despite Tax Incentives

Jeju Advanced Science and Technology Complex Business and Financial Hub Startups Considered 'Useless'
Ineffective Due to Restriction to Specific Areas
Needs Reorganization to Provide Actual Benefits

[Asia Economy Reporter Jang Sehee] Among this year's sunset-targeted tax exemption and reduction systems, the tax reduction performance for corporate investment was found to be sluggish. Contrary to initial expectations, companies either did not use imported goods or startup company performance was lackluster, resulting in no tax reduction benefits. The Ministry of Economy and Finance is conducting an 'in-depth evaluation' of special projects approaching sunset ahead of the tax law amendment announcement scheduled for July, and there are criticisms that related contents should be reorganized or the sunset should not be boldly extended to ensure companies can practically receive benefits.

According to the '2021 Tax Expenditure Budget Performance' obtained by Asia Economy through the National Assembly on the 9th, there are 86 tax special projects (excluding duplicates) approaching sunset this year, with tax expenditures reaching 5.2 trillion won. However, among these, 23 projects, accounting for 26.7%, showed no performance at all. This means that no tax expenditure benefits were received through the special measures. Although this includes special systems prepared for restructuring such as business reorganization and mergers, the number is considerable.

Relatively poor-performing special projects were related to regional investment attraction. Customs duty exemptions on imported goods for companies located in Jeju Advanced Science and Technology Complex and Jeju Investment Promotion District, as well as corporate tax reduction benefits for startups in the financial hub, were zero for two consecutive years in 2019 and 2020.

A government official explained, "In the case of Jeju Province, it was expected that resident companies would use imported goods, but the prediction was off as non-manufacturing sectors such as bio and information and communication technology (ICT) moved in."

The number of resident companies is also decreasing. Companies entering the Jeju Investment Promotion District decreased from 44 in 2018 to 41 in 2020. This means that the tax reduction benefits are not sufficient incentives to attract investment.

There was also no corporate tax reduction performance for startups in the financial hub. Since startups generally have poor performance, they can be exempted from corporate tax even without tax reduction benefits. Ultimately, it is a nominal and ineffective system.

Even within the government, there are remarks that the effect of tax benefits limited to certain regions is not significant. A government official stated, "It is not appropriate to provide tax benefits limited to specific regions," and added, "We plan to delete provisions that have fulfilled their purpose or are ineffective."

In particular, considering the serious fiscal deterioration, the need to reorganize the tax special system is gaining persuasiveness. The national tax reduction rate has exceeded the statutory limit for three consecutive years. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated, "We will strive to expand the revenue base by strengthening taxation on undeclared income and reorganizing tax exemption and reduction systems," expressing his commitment to fiscal expenditure efficiency.

Professor Park Ki-baek of the Department of Taxation at the University of Seoul emphasized, "There may be no reduction amount because the benefits were insufficient or meaningless even if given," and added, "Parts with no performance need to be examined particularly carefully." He further noted, "In the case of special measures temporarily applied due to COVID-19, judgment should be made by looking at whether the business conditions of the beneficiary industries have improved rather than the overall economy."

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