During Moon Administration's 5 Years, Tax Burden Rate Soars... Stark Contrast with G5

Strengthening Both Income and Corporate Taxes... Going Against Global Trends
New Government Needs to Rationalize 'Tax Burden'

[Image source=Yonhap News]

[Asia Economy Reporter Jin-ho Kim] It has been revealed that South Korea's tax burden rate surged sharply over the five years of the Moon Jae-in administration. This contrasts with major global advanced countries (G5) that have successively lowered corporate and income taxes. There are calls to rationalize the tax burden to secure growth engines and a tax revenue base.

On the 12th, the Federation of Korean Industries compared key tax items between South Korea and global advanced countries (G5) over the past five years (2017?2021) and found that South Korea was the only country to strengthen taxation on both income and corporate taxes, resulting in the steepest increase in the tax burden rate.

Over the past five years, South Korea was the only major country to raise the corporate tax rate and also expanded the corporate tax brackets. In 2018, South Korea raised the top corporate tax rate by 3.0 percentage points from 22.0% to 25.0%, and at the same time, introduced a new tax bracket for incomes exceeding 300 billion KRW, increasing the number of brackets from three to four.

In contrast, the G5 countries relaxed or maintained corporate tax standards over the past five years. The top rates were lowered in France (44.4% → 28.4%), the United States (35.0% → 21.0%), and Japan (23.4% → 23.2%). The United Kingdom (19.0%) and Germany (15.8%) maintained the same levels. The U.S. significantly reduced the number of tax brackets from eight to one. Other countries maintained a single bracket, resulting in a unified corporate tax rate across all G5 countries.

In the income tax sector, similar to corporate tax, South Korea was the only major country to strengthen taxation over the past five years. South Korea's top income tax rate increased by 5.0 percentage points from 40.0% in 2017 to 45.0% in 2021. The number of tax brackets also increased by two, from six in 2017 to eight in 2021.

The G5 countries also relaxed or maintained income tax standards. Looking at the top rates over the past five years, the U.S. lowered its rate (39.6% → 37.0%). The other four countries (Japan, Germany, the U.K., and France) remained unchanged at 45.0%. Regarding tax brackets, Germany reduced from five to four over the past five years, while the U.S. and Japan (seven brackets), France (five brackets), and the U.K. (three brackets) maintained their existing systems.

The Korea Economic Research Institute under the Federation of Korean Industries pointed out that the current Korean tax system has the problem of the tax burden increasing faster than in G5 countries, raising concerns about the weakening of private economic vitality.

Over the recent five years (2015?2019), South Korea's tax burden rate rose from 17.4% to 20.0%, an increase of 2.6 percentage points. During the same period, the average change among G5 countries was +0.3 percentage points. The Korea Economic Research Institute analyzed that the strengthening of corporate and income tax, which make up the three major tax items, influenced this increase.

In fact, over the past five years, South Korea's tax burden rate by tax item increased by 1.2 percentage points in corporate tax and 0.7 percentage points in income tax, both exceeding the average changes in the G5 countries (corporate tax: -0.1 percentage points, income tax: +0.3 percentage points).

The Korea Economic Research Institute suggested that considering South Korea's chronic low growth and rapid increase in national debt as medium- to long-term risks, tax reform is needed in the direction of lowering rates and broadening the tax base. By lowering tax rates, private economic activities can be stimulated, and at the same time, a stable tax revenue base and fiscal soundness can be secured through the dispersion and alleviation of tax burdens concentrated on specific groups, such as reducing the proportion of tax-exempt individuals.

Choo Kwang-ho, Director of the Economic Policy Office, stated, “The strengthening of corporate and income tax over the past five years, which runs counter to global trends, has caused side effects that undermine individual labor and corporate investment incentives. Especially as private financial burdens are considerable due to interest rate hikes and soaring international raw material prices, the new government needs to enhance economic vitality by easing the tax burden.”

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