"Double Taxation Caused by Misunderstanding of Retained Earnings"

Industrial Union Forum Analysis of Top 30 KOSPI Companies
Misunderstanding of 'Cash Hoards in Safes' Blocking Economic Circulation
Actual Cash Asset Ratio Only 16.7%
Most Companies Finance Operations Through Borrowing

[Asia Economy Reporter Yu Je-hoon] It has been revealed that the proportion of cash and cash equivalents within the retained earnings of 30 major domestic companies is below 20%. Contrary to the common perception of "large sums of money stored in the safe," these companies are not excessively holding assets that can be liquidated within three months. In the business community, voices are growing for the government to revise the taxation system on retained earnings, which has been a subject of ongoing double taxation controversy. ▷Related article on page 3

According to an analysis of the Q1 financial statements of the top 30 KOSPI-listed companies (excluding financial and holding companies) conducted by the Korea Industrial Alliance Forum (KIAF) on the 5th, the average retained earnings of these companies amounted to 25.3 trillion KRW, with cash and cash equivalents accounting for only 16.7% (4.2 trillion KRW) of the retained earnings.

Jung Manki, chairman of KIAF, pointed out the distorted perception surrounding retained earnings, saying, "Some, including political circles, perceive the economy as struggling because of the retained earnings accumulated by our companies, and some even argue that retained earnings should be released to create a virtuous cycle in the national economy."

The average debt ratio of these 30 companies reached 91.3% (25.3 trillion KRW), which is similar to their capital stock (27.7 trillion KRW). Kim Tae-dong, a researcher at the Korea Automobile Manufacturers Association (KAMA), stated, "The cash and cash equivalents currently held by companies are insufficient for large-scale investments or responding to changing business environments," adding, "This shows that most companies operate by raising capital through borrowing."

In a survey conducted by KIAF on 35 companies regarding the proportion of cash and cash equivalents within retained earnings, 37.1% reported less than 5%, 17.1% reported between 5% and less than 10%, and 14.3% reported between 10% and less than 15%, while only 8.6% had 50% or more. Additionally, when asked whether they planned to invest to alleviate tax burdens, 58.3% responded affirmatively, indicating a high perception that involuntary investments to avoid tax burdens are inevitable rather than strategic investments.

The problem is that external factors such as the recent COVID-19 pandemic and the US-China hegemonic rivalry have drastically changed the industrial landscape, making large-scale facility and research and development (R&D) investments urgently necessary for Korean companies, while the government's double taxation on retained earnings is hindering these efforts. Chairman Jung said, "In some sectors like semiconductors, large-scale and proactive investments amounting to hundreds of trillions of won are unavoidable to survive global competition, but the retained earnings taxation system causes involuntary investments that reduce investment efficiency, so measures for improvement are needed," and added that he plans to submit a proposal to the National Assembly and the government.

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