Deputy Prime Minister Hong: "Digital Tax Implementation Will Slightly Increase Tax Revenue... Monitoring Exchange Rates" (Comprehensive)

"Industry growth and national policy responses as variables for digital tax revenue"
"This year's inflation rate expected to exceed 2%... Close monitoring of exchange rates"
G20 Finance Ministers adopt statement supporting digital tax agreement

[Image source=Yonhap News]

[Asia Economy Reporter Son Sunhee] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated that the global digital tax, which will be implemented from 2023, "will act as a factor increasing tax revenue."

On the 13th (local time), immediately after attending the G20 Finance Ministers' Meeting held in Washington D.C., USA, Deputy Prime Minister Hong met with reporters and, when asked about the tax revenue impact of the digital tax introduction, said, "Pillar 1 (allocation of taxing rights to countries where sales occur) will inevitably cause a tax revenue decrease of several hundred billion won, but Pillar 2 (global minimum tax) will result in an increase of several hundred billion won." He explained that combining the two factors will somewhat increase the overall tax revenue.

Previously, the OECD and G20 Inclusive Framework (IF) agreed on a digital tax introduction plan that grants the right to tax global companies to countries where sales occur and limits the global minimum tax rate to 15%. Countries where sales occur can tax 25% of the excess profit exceeding the normal profit margin (10%) for global companies with consolidated sales of 20 billion euros (approximately 27 trillion won) or more and an operating profit margin of 10% or more. Domestic companies such as Samsung Electronics and SK Hynix must pay part of the taxes they previously paid to the countries where their overseas markets are located. On the other hand, the minimum tax rate application allows exercising taxing rights on global companies generating sales domestically. This applies not only to global IT companies like Google and Netflix generating sales in Korea but also to domestic companies that have been subject to corporate tax in countries with lower tax rates than Korea.

However, Deputy Prime Minister Hong predicted that future trends could change. He said, "There are about 80 platform companies operating in our country," and added, "(If Pillar 1 is implemented) it will act as a short-term tax revenue reduction factor, but variables such as the growth of the relevant industry and the policy response level of the respective countries will come into play." Accordingly, there is a forecast that a positive turnaround is possible from 2025 to 2030. Regarding Pillar 2, he said, "Other (low-tax) countries will undertake efforts such as raising corporate tax rates, so the surplus factor will gradually decrease over time."

Deputy Prime Minister Hong also forecasted that this year's annual inflation rate will be higher than the previous estimate (1.8%). He stated, "It seems that this year's inflation rate will finish slightly above 2%," and added, "We will make every effort to stabilize prices by the end of this year."

Regarding the recent unstable situation where the won-dollar exchange rate exceeded 1,200 won, he said, "Rapid fluctuations caused by speculative factors are very undesirable," and added, "We are closely monitoring exchange rate trends."

Meanwhile, at the G20 Finance Ministers' Meeting held that day, a joint statement was adopted to reaffirm support for this agreement. These finance ministers also agreed to promptly proceed with multilateral agreements and country-specific follow-up procedures before full implementation. Deputy Prime Minister Hong emphasized, "Swift follow-up measures are required, such as establishing a sophisticated framework for implementing agreements like multilateral agreements and model rules," and stressed that individual country conditions should be fully considered in additional discussion issues such as sales attribution criteria and marketing/distribution profit safe harbors. The digital tax agreement is scheduled to be endorsed at the G20 Summit in Rome, Italy, at the end of this month.

It is reported that the G20 finance ministers shared the view that "premature shifts in macroeconomic policy stances" should be avoided to sustain the global economic recovery after the COVID-19 pandemic. Deputy Prime Minister Hong said, "For the time being, expansionary macroeconomic policies should continue, followed by an orderly normalization thereafter."

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