Next Year’s Corporate Tax Rate Slightly Raised by 1%p... Samsung Electronics and Hynix Save Over 1 Trillion Won

Corporate Tax Top Rate Cut... 25%→24%

[Asia Economy Sejong=Reporter Lee Junhyung] The corporate tax burden of major domestic companies, including Samsung Electronics, is expected to decrease by nearly several hundred billion won starting next year. This is because the highest corporate tax rate applied to large corporations will be lowered by 1 percentage point from the current 25% to 24% starting next year. However, there are concerns that further reductions in corporate tax are necessary to maintain global tax competitiveness.

The biggest beneficiary of the corporate tax cut is Samsung Electronics, the largest company in Korea. Applying the reduced highest corporate tax rate of 24% (down 1 percentage point from the current 25%) to Samsung Electronics’ pre-tax net income of 53.3518 trillion won last year, the corporate tax is estimated at approximately 12.8044 trillion won. This is about 640 billion won less than last year’s corporate tax payment of 13.4444 trillion won.

Of course, it should be noted that to calculate the taxable income base for corporate tax, adjustments such as carryforward losses and non-taxable income must be made, and tax adjustments are required. Additionally, companies typically receive various tax deductions during the corporate tax payment process, so the effective tax rate differs from simply applying the tax rate to pre-tax net income. However, applying the 1 percentage point reduced corporate tax rate to pre-tax net income provides a rough estimate of the tax burden relief effect for each company.

SK Hynix’s Tax Burden Estimated to Decrease by 580 Billion Won

From this perspective, the tax burden of other major domestic companies will also decrease by several hundred billion won. SK Hynix, which stands alongside Samsung Electronics in the domestic semiconductor industry, paid 3.7998 trillion won in corporate tax last year. Its pre-tax net income was 13.416 trillion won. Applying the reduced highest corporate tax rate of 24% simply, SK Hynix’s tax burden decreases from 3.7998 trillion won to 3.2198 trillion won, a reduction of about 580 billion won. Using the same method, LG Electronics’ corporate tax burden last year decreases from 978.6 billion won to 850.4 billion won, a reduction of 128.2 billion won.

Although the scale differs, small and medium-sized enterprises (SMEs) and mid-sized companies also experience tax burden relief. Applying the same method, optical device manufacturer MCNEX’s corporate tax burden decreases from 10.8 billion won to 10.6 billion won, a reduction of about 200 million won. Considering that applying the highest tax rate at the time (22%) to last year’s pre-tax net income results in a corporate tax of approximately 11.1 billion won excluding tax adjustments, the tax relief effect is expected to be even greater.

However, Korea’s corporate tax rate remains relatively high compared to major countries. This is because many countries have lowered their corporate tax rates since the 2008 global financial crisis. Korea also lowered its highest corporate tax rate from 25% to 22% in 2009, a 3 percentage point reduction, but raised it back to 25% in 2018. Including local taxes, Korea’s highest tax rate was 27.5% as of last year, which is 4.3 percentage points higher than the OECD average of 23.2%. Korea’s corporate tax revenue as a percentage of GDP was 3.4% in 2019, significantly higher than major countries such as the United States (1%) and the United Kingdom (2.5%).

"Additional Corporate Tax Cuts Needed"

Given this situation, calls for further tax burden relief measures are gaining momentum. The current government initially aimed to reduce the highest corporate tax rate from 25% to 22%, a 3 percentage point cut, for this reason. The government also sought to simplify the complex four-tiered tax system by applying a 20% corporate tax rate to companies with taxable income under 20 billion won and 22% to those exceeding 20 billion won. If the government’s plan had been implemented as is, the tax cut amount over the next five years was estimated at about 4.2 trillion won on a net basis, approximately 27.3% more than the ruling and opposition parties’ agreement of 3.3 trillion won. Under the government’s plan (22%), Samsung Electronics’ annual tax burden reduction was expected to reach 1.6 trillion won.

Major domestic economic organizations also believe that a 1 percentage point reduction in corporate tax is insufficient to increase corporate investment and employment. Lee Sangho, head of the Economic Policy Team at the Federation of Korean Industries, said, “The highest corporate tax rate should be aligned with the OECD average (21.2%) to secure global tax competitiveness,” adding, “The current corporate tax rate is inadequate for attracting foreign investment capital.”

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