"Decision to Lower Corporate Tax Top Rate... Companies to Benefit with 300 Billion Won Profit Increase"

Cape Securities Report

[Image source=Yonhap News]

[Asia Economy Reporter Myunghwan Lee] As the government decided to lower the top corporate tax rate to 22%, securities firms have predicted that companies earning profits exceeding 300 billion KRW will benefit from this change.

On the 16th, the Yoon Seok-yeol administration announced the "New Government Economic Policy Direction," which includes lowering the top corporate tax rate from the existing 25% to 22%. The government stated it will shift the focus of economic management to the private sector, corporations, and the market, simplifying the current four-tier corporate tax brackets and reducing the top rate from 25% to 22%. Cape Securities noted that this is the first corporate tax reduction policy in 14 years since the Lee Myung-bak administration lowered the top corporate tax rate in 2008.

Cape Securities pointed out that the benefits of the corporate tax reduction will be seen by companies earning profits exceeding 300 billion KRW. According to Cape Securities' analysis, based on the 2021 financial statements of companies listed on the Korea Composite Stock Price Index (KOSPI), 119 companies are expected to benefit. These companies account for 78% of the total market capitalization of the KOSPI.

There is also an analysis that this corporate tax cut will have a positive impact on the KOSPI index. This is because the 119 companies expected to benefit represent 89% of the total pre-tax profits of the entire securities market. Accordingly, Cape Securities forecasted that the overall corporate tax expenses of KOSPI companies will decrease by approximately 9.36%. They also projected that the average effective tax rate will decline by 2.26 percentage points.

Cape Securities analyzed that this measure will increase the net profits of KOSPI companies by 2.99%, contributing to an improvement in profit growth rates. However, they noted that it will not be a factor that dramatically raises profit forecasts. Nevertheless, in the current situation where there are significant concerns about downward revisions of profit forecasts, it is expected to act as a partial buffer.

Researcher Juseop Son of Cape Securities stated, "In this corporate tax system change, companies with large pre-tax profits and significant corporate tax reductions relative to pre-tax profits will benefit the most," adding, "The corporate tax reduction effect will be significant in sectors such as IT electronics, semiconductors, energy, and banking."

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