[2021 Tax Reform] 1.5 Trillion KRW Tax Cut Effect Over 5 Years... Concentrated on Beneficiary Large Corporations

Announcement of 2021 Tax Law Amendment
Support for Research and Investment, Tax Reduction Effects Greater for Large Corporations than for Low-Income, Middle Class, and SMEs
"Excluding National Strategic Technologies, Large Corporations' Tax Burden Increases by 16.1 Billion" Explanation

Estimation of Tax Burden Incidence (Source: Ministry of Economy and Finance)

[Sejong=Asia Economy Reporter Kim Hyunjung] Through this year's tax law revision by the government, tax revenue is expected to decrease by 1.5 trillion won over the next five years. The large share of tax support for national strategic technology research and development (R&D) and facility investment is the main reason, with most of the decrease attributed to large corporations.

According to the Ministry of Economy and Finance on the 26th, the main factors for the 1.5 trillion won tax revenue decrease are tax support for national strategic technology R&D and facility investment, and the increase in the income limit for the earned income tax credit. The Ministry has not yet disclosed the specific estimated amounts of tax effects by each factor. On the other hand, factors causing an increase include the modernization of criteria for determining specific foreign corporations and the establishment of a limit for tax credit for tax payment associations.

The biggest beneficiaries of this tax law revision are large corporations. Looking at the detailed estimated tax burden allocation by the Ministry, large corporations are expected to see a decrease of 866.9 billion won over five years, which is more than twice the 308.6 billion won attributed to small and medium enterprises (SMEs). Low- and middle-income groups with less than 150% of median income (total salary under 72 million won) are expected to experience a tax burden reduction effect of 329.5 billion won, while high-income earners are expected to see a tax increase effect of 5 billion won. Other areas where allocation analysis is difficult, such as foreigners, non-residents, and public interest corporations, are expected to see a tax reduction effect of about 5 billion won.

By tax type, income tax is expected to decrease by 331.8 billion won over five years, while corporate tax is estimated to decrease by 1.3064 trillion won. Value-added tax and other taxes are expected to increase by 7.3 billion won and 125.9 billion won respectively. Looking at the annual breakdown, the tax reduction effect is concentrated next year (1.2579 trillion won), with 190.1 billion won in 2023, 20 billion won in 2024, and 19.3 billion won in 2025, and it is expected to be only 17.7 billion won after 2026.

However, excluding the national strategic technology portion, the tax revenue scale for large corporations is actually expected to expand. In this case, there is no change for low- and middle-income groups and high-income earners, while SMEs are expected to see a tax reduction effect of 30 billion won, and large corporations are expected to see a tax revenue increase of 16.1 billion won. Kim Taeju, head of the tax policy office at the Ministry of Economy and Finance, emphasized, "Excluding the national strategic technology sector, there is a tax revenue decrease effect of about 350 billion won, so on an annual scale, it can be considered tax revenue neutral."

Furthermore, when considering the tax revenue reduction effect due to the extension of sunset provisions in this tax law revision, the Ministry explained that most (83%) is attributed to vulnerable groups. Director Kim Taeju added, "The tax revenue effect of the sunset extension is estimated to be about 6 trillion won (decrease)," and "Most of the sunset extension items are support systems for low- and middle-income groups, SMEs, and other vulnerable groups."

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