Office of the President Reviews Corporate Tax Hike After Receiving Tax Reform Report

Office of the President: "Recently received reports from relevant ministries, listening to a wide range of opinions"
Focus on restoring corporate tax rate to 25%
Tax revenue decline cited as a cause, but industry claims "poor performance" is to blame

The Office of the President has received reports from relevant ministries regarding proposed tax reforms and has begun a comprehensive review of issues such as adjustments to the top corporate tax rate and the timing of implementation. It is also expected to gradually consider measures to secure additional tax revenue by reducing 'tax exemptions and reductions'.

On the 24th, the Office of the President stated regarding the proposed tax reforms, including changes to the corporate tax, "We have recently received reports from relevant ministries that normalizing the national tax base is necessary, and we are listening to a wide range of opinions on this matter." The office added, "However, no specific details have been finalized yet." This is the first time the Office of the President has confirmed that discussions on the tax reform proposal are underway.

Once discussions with the Office of the President are concluded, relevant ministries such as the Ministry of Economy and Finance will announce the tax reform plan, and after a Cabinet meeting, a tax law amendment bill will be submitted to the National Assembly. The 'normalization of the national tax base' mentioned by the Office of the President appears to refer to the tax reform plan recently reported by the Ministry of Economy and Finance. It is known that the ministry reported a plan to raise the top corporate tax rate by 1 percentage point, from 24% to 25%, to the Office of the President. This would restore the top corporate tax rate to the level before it was lowered by the previous administration.

Yonhap News Agency

The background for these discussions is the deterioration of tax revenue. Corporate tax revenue reached a record high of 103.6 trillion won in 2022, but fell to 80.4 trillion won in 2023 and to 62.5 trillion won last year, marking a decline for two consecutive years. The decrease in corporate tax revenue led to a tax revenue shortfall of 56.4 trillion won in 2023 and 30.8 trillion won last year, negatively impacting the national budget.

However, the business community claims that the decline in corporate performance is the cause of the decrease in corporate tax revenue. In fact, Samsung Electronics and SK Hynix, which account for a large portion of corporate tax payments, saw their operating profits plummet due to a downturn in the semiconductor market. Last year, the corporate taxes paid by these two companies decreased by about 8.36 trillion won compared to the previous year, accounting for 46.7% of the total decrease.

According to the Korea Development Institute (KDI), a 1 percentage point increase in the top corporate tax rate would result in a 0.46% decrease in investment and a 0.13% decrease in employment. In the long term, these figures would shrink by 2.56% and 0.75%, respectively. It is also estimated that gross domestic product (GDP) would decrease by 0.21% in the short term and by 1.13% in the long term. In addition, it has been reported that the Ministry of Economy and Finance also proposed adjusting the major shareholder capital gains tax threshold from 5 billion won to 1 billion won. There are concerns that raising the major shareholder threshold could trigger a 'sell-off' phenomenon, which has repeatedly occurred at the end of each year, particularly in the KOSDAQ market.

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