Despite Government's Regulatory Reforms, Companies Feel Little Relief... Triple Burden of Finance, Taxation, and Labor

SGI: "Incentives Must Be Strengthened to a Tangible Level"
Despite Regulatory Reforms, Companies Still Face Significant Burdens in Finance, Taxation, and Labor
Firms with Higher Burdens Invest Up to 21.1 Percentage Points Less
Administrative and

The government has been working to improve and revise regulations that hinder corporate management activities, but in reality, Korean companies report that they do not feel any significant change. In particular, it has been confirmed that companies are struggling with regulatory difficulties in the areas of financial accessibility, labor, and taxation.

According to the report "The Current State of the Korean Business Environment and Tasks for New Growth," released on August 28 by the Korea Chamber of Commerce and Industry's Sustainable Growth Initiative (SGI), 70.6% of Korean companies surveyed in the World Bank Enterprise Survey (WBES) cited financial accessibility (33.9%), taxation (20.9%), and labor regulations (15.8%) as the biggest obstacles to business management.

The report particularly pointed out that these perceptions among companies lead to significant differences in investment activities. In fact, statistics show that companies facing difficulties in financial access or feeling a heavy tax burden recorded up to 21.1 percentage points lower in the ratio of investment in facilities and intangible assets. Conversely, companies that viewed labor regulations as a burden tended to increase their investment in facilities and intangible assets. This result is attributed to companies choosing strategies focused on automation or technological development instead of expanding their workforce.

Indicators related to regulation from the Organisation for Economic Co-operation and Development (OECD) also confirm the challenges faced by companies. In the 2023-2024 OECD Product Market Regulation (PMR) index, Korea scored 0.9 in the "Regulatory Impact Assessment" category, which is lower than the average of 1.86 points. However, in the "Administrative and Regulatory Burden" category for the same period, Korea remained at the same level as in 2018, indicating that there are still clear limitations in alleviating the actual burden. The 2024 WBES also showed that the average period required for licensing procedures in Korea was 193.1 days, far exceeding the OECD average of 18.4 days, highlighting significant room for improvement in administrative efficiency.

Regarding these findings, SGI noted that Korean companies are experiencing difficulties not only with the regulatory system itself but also with the overall day-to-day management environment, including finance, labor, and taxation. For example, although Korea shows a high dependence on indirect financing such as banks, the WBES score for perceived constraints on financial accessibility was 76.7, higher than the OECD average of 68.1. A higher score indicates greater difficulty in financial accessibility.

In terms of tax-related incentives, while there are support measures such as the integrated investment tax credit and research and development (R&D) tax credits, SGI analyzed that repeated short-term extensions and limited scope of application restrict both predictability and tangible effectiveness. In particular, the absolute scale of indirect R&D support (tax incentives) in Korea is very low compared to major countries. Over the past five years, Korea's support growth rate was only 11.3%, while China expanded its support by 25.5% during the same period, nearly three times higher.

Foreign-invested companies in Korea also share similar concerns about the regulatory environment and incentive system. According to the "Survey on the Management Status of Foreign-Invested Companies (2023)" by the Ministry of Trade, Industry and Energy, 44.4% of respondents cited "regulatory improvement" as the top priority for the development of Korean industry. For policy measures to promote R&D, tax reductions (46.9%) and research funding support (23.5%) were the most frequently chosen options.

SGI emphasized that it is necessary to go beyond simply establishing systems and instead create a predictable and visible incentive structure that companies can actually feel in practice.

Amid growing calls for substantive reform of the overall regulatory and incentive system, both the government and the private sector are actively discussing related issues. The recently announced 123 major national tasks of the Lee Jaemyung administration include support for science and technology to become a global leader in artificial intelligence (AI), the creation of a 100 trillion won National Growth Fund and capital market innovation, and the redesign of regulations for new industries. Meanwhile, the three major economic organizations-the Korea Chamber of Commerce and Industry, the Federation of Korean Industries, and the Korea Federation of SMEs-plan to continue policy discussions on differentiated regulations by company size through the launch of the "Corporate Growth Forum."

SGI suggested that, within this trend, it is necessary to substantially improve the conditions for corporate growth in ways that companies can actually feel, through strategic and selective policy experimentation.

Specific improvement measures proposed include flexible application of the separation of banking and commerce principle for fostering strategic industries, direct refund-type tax support for companies similar to the U.S. Inflation Reduction Act (IRA), and bold institutional experiments such as flexible application of the 52-hour workweek limited to industries where technological development and market preemption are crucial. However, SGI explained that since full-scale introduction in the short term is realistically difficult, a phased approach should also be considered, such as designing mega-sandboxes by project or strategic technology focus to selectively verify the effects of deregulation.

Park Yangsu, head of SGI, stated, "With a regressive structure where regulations increase and support decreases as companies grow, it is impossible to strengthen incentives for corporate growth," adding, "We need to restructure the incentive system to reward and encourage growing companies."

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