"G7 Agreed on Minimum Tax... Doubts About Ministry of Economy and Finance's Revenue Estimation Ability"

Yong Hye-in, Basic Income Party Lawmaker, Claims
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Janet Yellen, U.S. Secretary of the Treasury. (Photo by Reuters)

[Sejong=Asia Economy Reporter Moon Chaeseok] As the global minimum corporate tax rate has been set at an effective tax rate of 15%, suspicions have been raised in the National Assembly that the Ministry of Economy and Finance may not be accurately estimating tax revenues.

On the 10th, Yong Hye-in, a member of the Basic Income Party, released a report titled "The G7 Agreed on a Minimum Tax, When Will Our Tax Revenue Estimates Follow?" making this claim. She had requested the Ministry of Economy and Finance on the 26th of last month to provide predictions on changes in tax revenue following the introduction of the global minimum corporate tax rate, but after receiving a response stating, "It is difficult to reasonably estimate the scale at this point," she raised concerns.

Source: Office of Yong Hye-in, Basic Income Party.

According to Representative Yong, the Ministry of Economy and Finance formed a task force (TF) in 2019 when discussions on introducing the global minimum tax began and promised to examine the tax revenue effects, but has yet to present clear data. In contrast, the European Tax Observatory released data on the 1st estimating tax revenue projections after the introduction of the global minimum tax for 37 countries including South Korea, as well as trends in corporate tax burdens of major global companies. Last year, the Organisation for Economic Co-operation and Development (OECD) also estimated the scale of global tax revenue losses and changes in tax receipts.

According to the European Tax Observatory data, even with a 15% minimum tax applied, an average corporate tax rate of 15.1% could be collected from the 37 countries. The United States was estimated to have an additional tax revenue capacity of 10.8%. The average tax revenue increase among OECD countries was $4.7 billion (5.2 trillion KRW). The United States, which hosts the largest number of global companies, was found to account for 35% of the OECD's total excess tax revenue. South Korea’s current statutory highest corporate tax rate (including local taxes) is 27.5%, and the effective corporate tax rate was 19.1% (as of 2019), which is higher than 15%, so it is estimated that no additional tax revenue will be generated.

Expected Additional Tax Revenue Scale from the Introduction of a Global Minimum Tax in OECD Countries. Assuming a minimum tax rate of 15%, based on data released by the European Tax Observatory, prepared by the Office of Yong Hye-in of the Basic Income Party. Unit = billion dollars, (Source = Office of Yong Hye-in, Basic Income Party)

Despite the release of data from various countries, Representative Yong claimed that the Ministry of Economy and Finance has not presented clear data. She noted that there has been no progress since the Ministry said in 2019 and last year that "it is difficult to estimate accurately."

Previously, in October 2019, the Ministry of Economy and Finance stated in a press release that it would "operate a public-private TF as needed and respond comprehensively considering the impact on domestic related industries and tax revenue effects." A year later, the Ministry said again that "the impact on domestic tax revenue from the introduction of the digital tax will be fluid depending on conclusions about detailed variables," and that "it is difficult to accurately estimate the overall corporate tax revenue and corporate tax burden impact domestically." On the 31st of last month, the Ministry reiterated in response to Representative Yong’s request for data on changes in tax revenue that "it is expected to be fluid depending on conclusions about detailed variables, so it is difficult to reasonably estimate the scale at this point."

Representative Yong said, "It is hard to accept that two years after the minimum tax discussion began and the G7 has reached an agreement, the Ministry of Economy and Finance still cannot provide concrete data on tax revenue impact simulations and the effects on companies and industries," adding, "Since the G20 agreement, which includes South Korea, is also expected to proceed smoothly, I hope the Ministry will disclose data to the public until then."

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