"Corporate Tax Competitiveness Ranked 34th Among OECD... Tax Cuts Should Be Pursued"

FKCCI Publishes Report on 'Corporate Tax System Improvement Directions for Business (Gi-UP)'

[Provided by the Federation of Korean Industries]

[Asia Economy Reporter Han Ye-ju] A claim has been raised that high corporate tax burdens act as a 'shackle' holding back companies and that tax cuts should be pursued.

The Federation of Korean Industries (FKI) announced that it will publish and distribute from the 15th a booklet titled "Corporate Tax System Improvement Directions for Business (氣-UP)" to member companies, the National Assembly, and media outlets, aiming to present the problems and improvement directions of the corporate tax system that hinder the competitiveness of domestic companies.

The booklet consists of two volumes: Volume 1 covers the current status of Korea's corporate tax and the necessity of corporate tax cuts, while Volume 2 contains opinions on improving major corporate tax systems.

Korea's corporate tax imposes a significant management burden on companies. The highest corporate tax rate (27.5%, including local taxes) ranks 10th among 38 OECD countries, placing it in the upper tier. The ratio of corporate tax revenue to GDP and the proportion of corporate tax revenue to total tax revenue, indicating dependence on corporate tax, are also higher compared to major overseas countries (G5, OECD). Additionally, Korea is the only OECD country applying a complex four-tier progressive taxation system, which runs counter to global standards. Due to the high corporate tax rate and complicated tax system, Korea's corporate tax competitiveness ranks 34th out of 38 OECD countries, near the bottom.

Through the booklet, FKI argued that lowering corporate tax would promote corporate investment and employment, generate positive ripple effects for stakeholders such as shareholders and workers, and benefit society as a whole. Furthermore, economic growth would be stimulated, leading to increased government tax revenue in the medium to long term. In particular, corporate tax cuts indirectly expand companies' surplus income, serving as an important financial defensive measure to withstand the current severe cash flow pressures.

FKI stated that since small and medium-sized enterprises (SMEs) and mid-sized companies also benefit from the government's current corporate tax cuts, it is not a "tax cut for the rich" benefiting only a few large corporations. Moreover, the actual bearers of corporate tax are shareholders and workers, and since company size does not correlate with the income levels of shareholders and workers, perceiving large companies as wealthy is not aligned with reality.

Concerns exist that corporate tax cuts could cause fiscal deficits and stimulate inflation. In response, FKI explained that Korea's fiscal capacity remains sound for now, and tax cuts will contribute to fiscal expansion by increasing tax revenue in the long term. They also noted that corporate tax cuts encourage corporate investment and R&D activation, enhancing the economy's supply capacity and thereby stabilizing prices in the medium to long term.

Questions have been raised about whether corporate tax cuts actually have positive effects on the economy. FKI pointed to the precedent in 2008 when corporate tax rates were lowered, and despite the global financial crisis, corporate investment held up well. They also cited overseas cases such as the United States and Ireland, where corporate tax rate reductions led to high growth.

FKI argued that not only should the corporate tax rate be lowered, but major corporate tax systems that disadvantage companies should also be reformed. The five key reform tasks proposed by FKI are: ▲abolition of the 'Investment and Win-Win Cooperation Promotion Tax System,' ▲expansion of R&D tax support, ▲raising the limit on loss carryforward deductions, ▲exemption of dividends received from overseas subsidiaries, and ▲abolition of the minimum tax system.

Choo Kwang-ho, head of FKI's Economic Headquarters, stated, "The corporate tax system is one of the critical factors determining the global competitiveness of domestic companies," and added, "To help our companies overcome the current management crisis and secure a global competitive edge, it is urgent to improve the unreasonable corporate tax system compared to major overseas countries."

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