Dormant Corporate Tax Reduction Bill... Six Major Economic Organizations Unitedly Urge National Assembly for "Prompt Passage"

Joint Statement by Business Community Urging Prompt Revision of Corporate Tax System
Effect of Corporate Tax Reduction to Occur Six Months After Implementation
"Proactive Legislation Needed to Prepare for Next Year's Economic Downturn"

[Asia Economy Reporter Choi Seoyoon] On the 7th, the business community appealed to the National Assembly to expedite the processing of government-proposed bills related to corporate tax cuts. This is interpreted as a concern that the momentum for passing the bill may weaken due to other pending issues such as the so-called 'Yellow Envelope Act' and the ongoing investigation into the Itaewon tragedy during the regular session of the National Assembly, which runs until the 9th of next month.

On this day, six major economic organizations, including the Korea Chamber of Commerce and Industry, issued a joint statement urging the National Assembly to promptly pass the amendment to the Corporate Tax Act that reduces corporate tax. The joint statement included participation from the Korea Chamber of Commerce and Industry, Korea Employers Federation, Federation of Korean Industries, Korea International Trade Association, Korea Federation of SMEs, and Korea Federation of Medium-sized Enterprises.

Currently, a government-proposed amendment to the Corporate Tax Act, which lowers the highest corporate tax rate from 25% to 22%, a 3 percentage point reduction, is pending in the National Assembly.

The six economic organizations emphasized that corporate tax must be cut 'now' to respond to next year's economic downturn. Since the policy will be implemented from the second half of next year when companies are required to pay corporate tax under the current law, it can at least be used as a measure to counter the economic recession in the second half of next year.

"Business Community: Corporate Tax Cut Will Increase Corporate Investment and Employment"

The business community cited five reasons why the corporate tax cut law must be passed 'now': ▲alleviation of management difficulties ▲increase in investment and employment ▲catalyst for attracting foreign investment ▲overall social benefits ▲balanced tax reduction between large and small-to-medium enterprises.

First, they argue that corporate tax cuts are necessary to 'emergency rescue' companies facing funding crises. This is due to rising interest rates and inflation causing a sharp drop in consumption, leading to unsold products and accumulating inventory. According to the Korea Chamber of Commerce and Industry, manufacturing inventory has increased for four consecutive quarters. As of the second quarter, it surged 18% compared to the same period last year, marking the largest increase in 26 years. The government has decided to raise interest rates for the time being to curb soaring inflation, making it difficult for companies to urgently obtain loans. With raw material prices soaring and the exchange rate rapidly rising (depreciation of the won), business management uncertainty is increasing. While exporters view a rising exchange rate as favorable, the consensus is that continued short-term volatility is not a positive sign.

With growing business uncertainty and numerous factors dampening consumer spending power, economic recovery is difficult. According to international organizations, the global economic growth forecast for next year is declining. The six economic organizations appealed for urgent cash flow improvement measures to enable companies to quickly secure funds in preparation for prolonged business uncertainty due to a long-term recession. They stated that corporate tax reform is the solution.

The business community also sees the possibility of a virtuous cycle where companies that extinguish their 'urgent fires' through corporate tax cuts increase investment and employment. According to a 2016 report by the Korea Development Institute (KDI), a 1% decrease in the average effective corporate tax rate is estimated to raise the investment rate by 0.2 percentage points.

According to an OECD survey, two years after the United States cut corporate taxes, the average growth rate of gross fixed capital formation increased from 3% to 3.7%, a rise of 0.7 percentage points. France also saw an increase from 0.5% to 3.7%, a 3.2 percentage point rise. Gross fixed capital formation growth rate refers to the increase in business expenses such as replacing old facilities with new ones or establishing new factories and purchasing equipment for new businesses.

Additionally, the six economic organizations argued that corporate tax cuts would ▲increase foreign investment attraction and ▲contribute to society through dividends, product price reductions, wage increases, and expanded investment opportunities.

"Special Provisions for SMEs and Medium-sized Enterprises... Not a 'Tax Cut for the Rich'"

The six economic organizations refuted claims that the 2008 corporate tax cut had minimal effects, citing evidence that facility investment and employment significantly increased after the global financial crisis ended in 2010.

Moreover, they emphasized that the 'tax cut for the rich' controversy, which often accompanies discussions about corporate tax cuts, is not true. The bill includes the establishment of 'special provisions for SMEs and medium-sized enterprises,' designed so that SMEs receive greater tax reduction benefits than large corporations.

According to the Ministry of Economy and Finance, the newly established special provision applies a special tax rate of 10% on the taxable income up to 500 million KRW for SMEs and medium-sized enterprises. The tax reduction rate for SMEs is 13%, which is 3 percentage points higher than the 10% for large corporations.

The business community stressed, "If corporate tax is reduced, we promise to do our best to increase investment, employment, and innovation activities and ensure that benefits are distributed throughout society."

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