Choe Sang-mok Administration Emphasizes 'Dynamic Economy,' Working on Measures to Revive Businesses

There is speculation that Choi Sang-mok, the nominee for Deputy Prime Minister and Minister of Economy and Finance who will lead the Yoon Suk-yeol administration's 'second economic team,' will include numerous measures to strengthen corporate investment incentives in next year's economic policy. This follows his expressed commitment to easing excessive regulations that hinder companies and accelerating structural reforms to restore the dynamism of the Korean economy.

According to the government on the 20th, the Ministry of Economy and Finance plans to announce the '2024 Economic Policy Direction' in mid-January next year. The decision on economic policy direction is a procedure centered on the Ministry of Economy and Finance, the economic control tower, to forecast the economic situation for the new year and set priorities for policies that each ministry will focus on implementing. Usually, the Ministry of Economy and Finance announces this before the end of the year, but this year it was postponed to January due to the inauguration of the new Deputy Prime Minister. Economic experts expect that since the new economic policy direction will be the first major policy announcement by the new Deputy Prime Minister, the pro-business policy stance reflecting the Yoon Suk-yeol administration's private sector-led economic philosophy will be significantly strengthened.

First, the possibility of an additional reduction in the corporate tax top rate is drawing the most attention from the business community. In its first year in office, the Yoon Suk-yeol administration lowered the corporate tax top rate by 1 percentage point across taxable income brackets from the previous 25%. The government initially prepared a tax law amendment to reduce it to 22%, but during the National Assembly discussions, it was finally set at 24%. The government stated that the effective tax rate of Korean companies, including local taxes, was 21.4% as of 2019, higher than that of the U.S. (14.8%) and Japan (18.7%). The position is that excessive corporate taxes must be lowered for Korean companies to secure international competitiveness.

Choi Sang-mok, the candidate for Deputy Prime Minister and Minister of Economy and Finance, is delivering opening remarks at a press briefing held at the Seoul Credit Guarantee Foundation in Jung-gu, Seoul, on the 5th. Photo by Kang Jin-hyung aymsdream@

Nominee Choi also keeps the possibility of a corporate tax cut open. In his written answers to the confirmation hearing the day before, he emphasized, "For a dynamic economy centered on the private sector, an internationally competitive corporate tax system is necessary." Experts analyzed that if corporate tax is further reduced, corporate investment and employment will increase. The Korea Economic Association analyzed that if the corporate tax top rate is lowered by 1 percentage point, the investment ratio relative to total corporate assets would increase by 5.7 percentage points, and employment by 3.5 percentage points, respectively. The explanation is that the tax rate reduction directly contributes to expanding corporate financial capacity, leading to revitalization of investment and employment.

The possibility of extending the temporary investment tax credit, which ends at the end of this year, is also being discussed. According to the government's Restriction of Special Taxation Act, to overcome domestic demand contraction, companies investing in national strategic technologies such as semiconductors, electric vehicles, and bio receive a basic tax credit of 15% for large and medium-sized enterprises and 25% for small and medium-sized enterprises. Additionally, under the 'K-Chips Act' passed by the National Assembly earlier this year, an additional 10% temporary investment tax credit is provided, allowing large and medium-sized enterprises to receive up to 25% and small and medium-sized enterprises up to 35% tax credits. However, this benefit applies only to the amount exceeding the average investment over the past three years. If the temporary investment tax credit ends, the additional tax credit benefit for increased investment disappears.

Nominee Choi expressed his intention to actively consider extending the temporary investment tax credit for one more year until the end of next year. With expectations for a recovery in the global semiconductor cycle next year, there is growing anticipation that investment expansion by Korean companies will accelerate. There is also speculation that the extension period could be longer than one year. The business community has suggested the need to promote the temporary investment tax credit for up to three years to ensure stable investment. The Korea Chamber of Commerce and Industry analyzed in its report, 'The Effect and Measures of Investment Tax Credit on Corporate Investment,' that increasing the investment tax credit rate by 1 percentage point could increase corporate investment by up to 8%, and also improve job creation and labor productivity.

He also hinted at the possibility of easing the capital gains tax criteria for major shareholders. Currently, if a shareholder holds more than 1% of a specific company listed on the KOSPI, 2% on KOSDAQ, or 4% on KONEX, or holds stocks worth more than 1 billion KRW per stock, they are considered major shareholders and are taxed 20% on capital gains. Since the capital gains tax threshold was lowered from 5 billion KRW in 2013 to 1 billion KRW in 2020 during the Moon Jae-in administration, the business community believes it is necessary to raise it again to revitalize companies. Nominee Choi stated, "Capital gains tax can affect capital mobility among assets," adding, "It is a matter to be decided comprehensively considering domestic and international economic conditions."

Professor Yang Jun-mo of Yonsei University's Department of Economics said, "For economic revitalization, it is urgent not only to extend the temporary investment tax credit but also to improve the inheritance tax issues threatening corporate management rights." He added, "The government needs to prepare efficient and proactive support measures so that companies can strengthen investment and improve their structure."

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