[Weekly Review] "33 Trillion Supplementary Budget" Critical for Reviving Economy... "Policy Effectiveness is Low" Criticism Also Raised

Samsung Electronics, SK Hynix, and Other Korean Companies Should Pay More Digital Tax Abroad
First Ever Semiannual $300 Billion Export... Implementation of 52-Hour Workweek for Companies with Fewer Than 50 Employees

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] The government has approved a second supplementary budget of 33 trillion won to revive the Korean economy, which was hit by COVID-19. An agreement was reached among 130 countries to introduce a digital tax that requires global corporations to pay more corporate tax in countries where their sales occur.

Although the real economy showed signs of recovery, such as exports surpassing $300 billion for the first time in the first half of the year, controversies arose over policies that impose considerable burdens on companies, including the introduction of the 52-hour workweek system for companies with fewer than 50 employees.

Disaster Relief Fund of 250,000 Won Per Person for 80% of the Population

On the 1st, the government announced that it would inject a total of 36 trillion won, including the already confirmed 3 trillion won from the second supplementary budget of 33 trillion won. It will provide 10.4 trillion won in COVID-19 coexistence support funds to 18 million households in the 'bottom 80% income bracket.' Instead of a fixed amount per household, 250,000 won will be given per household member. For small business owners affected by business suspensions and restrictions due to COVID-19, a budget of 3.9 trillion won has been allocated. Depending on the damage scale, between 1 million and 9 million won will be distributed. The damage assessment period is from August last year to June this year.

Additionally, ▲ 4.4 trillion won for vaccine purchase and quarantine ▲ 1.1 trillion won for employment expansion including direct job projects ▲ 1.8 trillion won for youth support in jobs and housing will be spent. The supplementary budget resources will be covered by an excess tax revenue of 31.5 trillion won compared to this year's budget, 1.7 trillion won of leftover global surplus funds from last year, and 1.8 trillion won from fund resources. Of this 35 trillion won, 2 trillion won will be used to repay national bonds. While it is expected to contribute to revitalizing domestic demand, criticisms have also emerged that ▲ the near-universal payment undermines fiscal stability and ▲ the coexistence consumption support fund (card cashback) may cause regressive effects, as high-income earners who use cards more receive greater benefits.

Samsung Electronics and SK Hynix to Pay Digital Tax Overseas

[Image source=Yonhap News]

From 2023, Samsung Electronics and SK Hynix are expected to pay less tax to the Korean government and more to foreign governments. From Korea's perspective, tax revenue is expected to increase as it can collect more taxes from companies like Google and Apple. The global minimum corporate tax rate has been set at 15%. The OECD and the G20 Inclusive Framework (IF) announced on the 1st via an online video conference that 130 out of 139 countries agreed on the introduction of the digital tax (Pillar 1) and the global minimum tax (Pillar 2). Nine countries, including Ireland, opposed because they have attracted global companies with low corporate tax rates.

The digital tax is a tax system that requires multinational corporations to pay taxes in countries where sales occur, even if they do not operate a fixed place of business abroad. It allocates the taxing rights on excess profits above a certain threshold to the countries where sales occur. The digital tax applies to global multinational corporations with consolidated sales of 20 billion euros (about 27 trillion won) and a profit margin of 10% or more.

Foreign media reported that about 100 companies, including Google and Apple, will be subject to this tax. Samsung Electronics is expected to be included among Korean companies. SK Hynix is also likely to be subject depending on its profit margin. The agreement also includes the introduction of a global minimum corporate tax of at least 15%. Corporations operating in countries with tax rates below 15% must pay the tax difference to the parent company's country. G20 finance ministers will discuss the digital tax on the 9th in Venice, Italy. They plan to reach detailed agreements by October, sign in 2022, and implement in 2023.

Korea's Exports Reach $300 Billion for the First Time in a Half-Year Period

[Image source=Yonhap News]

The Ministry of Trade, Industry and Energy announced on the 1st that Korea's exports last month reached $54.8 billion, a 39.7% increase compared to June of the previous year, marking the highest June export amount ever. Exports of 15 key items including semiconductors, general machinery, and petrochemicals, as well as exports to nine major regions, all showed positive growth simultaneously for the first time in 10 years, continuing the export boom. In particular, the cumulative exports for the first half of the year surpassed $300 billion for the first time ever, achieving the highest record.

Monthly exports have increased for eight consecutive months since November last year, and have exceeded $50 billion for four consecutive months recently.

Among the 15 key items, all increased, with 14 showing double-digit growth. Especially, semiconductors, the top export item, recorded the highest June export amount ever ($11.16 billion) for two consecutive months, supported by steady memory demand. General machinery and petrochemicals, the second and third largest export items and economically sensitive items, also achieved their highest June performance with increases of 21.5% and 68.5% respectively compared to the same period last year.

52-Hour Workweek System Applied to Companies with Fewer Than 50 Employees Without Grace Period

Despite the improvement in the real economy, companies have expressed concerns about increased management uncertainty due to labor regulations. This is because the 52-hour workweek system was applied from the 1st to companies with 5 to 49 employees without any grace period. The government decided to expand the 52-hour workweek system, which has been gradually implemented since 2018, to companies with 5 to 49 employees starting next month. Although economic organizations such as the Korea Federation of SMEs requested an extension of the grace period, it was effectively rejected. Thus, all companies with 5 or more employees must comply with the 52-hour workweek system, following the application to companies with 300 or more employees in 2018 and 50 to 299 employees in January 2020. The Ministry of Employment and Labor explained the policy goal as "institutional improvement to reduce long working hours."

Additionally, from the 1st, the employment insurance system for 12 special employment types (so-called 'special types of workers' or 'teukgo') such as delivery drivers has been implemented. Designated drivers and quick service workers (including delivery riders) will be included from January next year. This policy is part of the nationwide employment insurance system scheduled for implementation in 2025. Special types of workers will be able to receive unemployment benefits and maternity benefits. Furthermore, the system will be strengthened to prevent exclusion from industrial accident insurance except for unavoidable reasons such as illness or childcare leave. Many special types of workers have been forced to sign waivers to give up industrial accident insurance under implicit pressure from employers, but this aims to reduce such cases. A Ministry of Employment official said, "Since the application exclusion rate for industrial accident insurance among special types of workers is high, we judged that they are in a blind spot for industrial accident compensation and decided to implement this policy."

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