[Weekly Review] Corporate Tax Top Rate Cut to 22%... US Raises Interest Rates Sharply for First Time in 28 Years

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho is announcing the new government's economic policy direction on the 16th at the Government Seoul Office in Jongno-gu, Seoul. From the left, Cho Kyu-hong, 1st Vice Minister of Health and Welfare, Lee Young, Minister of SMEs and Startups, Lee Jeong-sik, Minister of Employment and Labor, Deputy Prime Minister Choo, Won Hee-ryong, Minister of Land, Infrastructure and Transport, Jang Young-jin, 1st Vice Minister of Trade, Industry and Energy. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Sejong=Reporter Son Seon-hee] The government will lower the current highest corporate tax rate from 25% to 22%. Previously, when the Moon Jae-in administration took office, the highest corporate tax rate was raised to 25% starting in 2018, but this will be reverted. In addition, the current four-tiered tax bracket will be simplified.

Also, for single homeowners, the basic deduction for comprehensive real estate tax will be raised to KRW 1.4 billion in official property value for this year only, reducing the tax burden to the 2020 level.

The parental leave period will be extended to 1 year and 6 months, and the basic pension will be gradually increased from KRW 300,000 to KRW 400,000.

The government announced these details on the 16th as part of the "New Government Economic Policy Direction." It set "Freedom, Fairness, Innovation, and Solidarity" as the four main pillars, expressing the intention to restore the market economy and overcome low growth.

In particular, the government clearly defined the center of economic management as the "private sector" rather than the government, and sought to revitalize the economy by readjusting various tax and penalty regulations and pursuing strong regulatory innovation. The corporate tax cut is part of this effort.

The investment win-win cooperation promotion tax, considered one of the representative penalty taxes on companies, will be abolished, and tax support for national strategic technologies such as semiconductors will be strengthened. Penalty regulations on CEOs will be converted to administrative sanctions to reduce corporate uncertainty.

President Yoon Seok-yeol said at the announcement meeting of the new government’s economic policy direction, "In times of crisis, we must fundamentally change the structure of our economy led by the private sector and market. Otherwise, it will be difficult to overcome the complex crisis."

The property tax burden on single homeowners will be restored to the 2020 level. Property tax will reduce the fair market value ratio from 60% to 45%, and comprehensive real estate tax will reduce the fair market value ratio from 100% to 60%, while applying a special deduction of KRW 300 million only for single homeowners. The comprehensive real estate tax threshold for single homeowners will rise from an official property value of KRW 1.1 billion to KRW 1.4 billion.

The loan-to-value ratio (LTV) cap for first-time home mortgage loans will be eased to 80%, regardless of region, housing price, or income. The financial investment income tax and virtual asset taxation will be deferred for two years. The securities transaction tax will be lowered from the current 0.23% to 0.20% next year.

US Fed Raises Benchmark Interest Rate by a Shocking 0.75%P

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), held a press conference on the 15th (local time) at the Fed headquarters in Washington DC after concluding the Federal Open Market Committee (FOMC) regular meeting. On this day, the Fed announced a 0.75 percentage point increase in the benchmark interest rate. Chairman Powell indicated the possibility of raising the rate by the same margin in July, emphasizing a full-scale effort to control inflation. 2022.6.16 [Image source=Yonhap News]

The United States, facing the worst inflation, has implemented the largest benchmark interest rate hike in nearly 28 years to curb prices.

The US Federal Reserve (Fed) held a regular Federal Open Market Committee (FOMC) meeting on the 15th (local time) and raised the benchmark interest rate by 0.75 percentage points. As a result, the US benchmark interest rate rose from the previous 0.75?1.00% range to 1.50?1.75%. This 'giant step' of a 0.75 percentage point rate hike by the Fed is the first in 28 years since 1994.

Moreover, a large rate hike is expected not only this month but also next month. Fed Chair Jerome Powell said, "Because inflation is too high, continued rate hikes are expected to be appropriate," adding, "At the next meeting, the possibility of a 50bp (0.5%p) or 75bp rate hike is highest."

As the US sharply raises its benchmark interest rate, South Korea is also likely to take a 'big step' by raising rates by 0.5 percentage points at once. Lee Chang-yong, Governor of the Bank of Korea, held an emergency macroeconomic and financial meeting immediately after the FOMC meeting with Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, Vice Chairman of the Financial Services Commission Kim So-young, Financial Supervisory Service Governor Lee Bok-hyun, and Chief Secretary for Economic Affairs to the President Choi Sang-mok. After the meeting, Governor Lee told reporters regarding the possibility of a 'big step,' "There are 3 to 4 weeks left until the next Monetary Policy Board meeting (July 14), and many changes may occur," adding, "We will decide (the rate hike size) after observing market reactions."

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