Corporate Tax Talks Reveal Party Differences... 'Increase Only for Large Corporations' Gains Traction

Tax Subcommittee Begins Deliberations on Corporate Tax Hike Proposal
Ruling Party: "Tax Revenue Shortfall Must Be Addressed" vs. Opposition: "Increased Burden on Businesses"
Consensus Emerging on Maintaining Current Rates for Companies with Tax Bases up to 20 Billion Won

The ruling and opposition parties met on November 18 to discuss a proposal to raise the corporate tax rate by 1% for each tax base bracket, but failed to reach a conclusion and postponed the decision. This was due to differences in opinion between the parties regarding the effectiveness and potential side effects of increasing the corporate tax rate for all companies as proposed by the government.

However, both sides agreed that there was a need to review the suggestion of freezing the corporate tax rate for small and medium-sized enterprises while selectively raising the rate only for higher tax brackets, such as large corporations. They decided to request related data from the government, including the expected increase in tax revenue for each tax base bracket, and to reconvene for further discussions after reviewing the materials.

The Tax Subcommittee of the National Assembly's Planning and Finance Committee began discussions on this day at the National Assembly regarding the government proposal and member-proposed bills related to adjustments in the corporate tax base and tax rates.

The corporate tax section of the government’s tax reform plan, which was submitted to the National Assembly, was brought to the discussion table. The government proposal includes a 1 percentage point increase in the tax rate for each corporate tax base bracket (up to 200 million won, over 200 million won and up to 20 billion won, over 20 billion won and up to 300 billion won, and over 300 billion won). The intention is to restore the corporate tax rates, which were lowered during the Yoon Suk-yeol administration, to the 2022 level under the Moon Jae-in administration, citing a shortfall in tax revenue.

On this day, the parties reportedly remained sharply divided, reiterating their existing positions. The Democratic Party of Korea argued that the tax reduction policies under the Yoon Suk-yeol administration led to a revenue shortfall, and since this did not directly result in increased corporate investment or employment, the government should use the additional revenue from a corporate tax hike to directly support employment and facility investment. In contrast, the People Power Party argued that raising the corporate tax rate would burden businesses and hinder investment attraction. In particular, if the highest tax rate applied to large corporations is raised by 1 percentage point, it would become 26.4% when including local taxes, making it difficult to reach an agreement as the opposition strongly opposes this adjustment.

The Tax Subcommittee of the National Assembly's Planning and Finance Committee held a discussion on the 18th at the National Assembly regarding the government proposal and member-proposed bills related to adjustments in corporate tax base and tax rates.

However, even within the ruling party, there are opinions that the government’s plan to increase the corporate tax rate for brackets up to 200 million won and over 200 million won and up to 20 billion won would negatively impact small and medium-sized enterprises, suggesting that compromise may be possible. Among the six member-proposed bills under review (submitted by Ando Geol, Kim Gipyo, and Yoon Junbyung of the Democratic Party, Kim Mi-ae and Choi Eunseok of the People Power Party, and Yoon Jongoh of the Progressive Party), the bill submitted by Ando Geol proposes maintaining the current tax rates for the two brackets up to 20 billion won and raising the rates by 1 percentage point only for the top two brackets. In addition, the bill sponsored by Kim Gipyo includes a plan to raise the rate by 1 percentage point only for the highest bracket while maintaining the current rates for the other three brackets.

Park Sooyoung, chairman of the Tax Subcommittee from the People Power Party, told reporters on this day, "The government has agreed to recalculate and provide data on how much tax revenue would increase if the tax rate is raised by 1 percentage point for each tax base bracket," adding, "Regarding the lower brackets related to self-employed individuals, small business owners, and small and medium-sized enterprises, if the increase in tax revenue is not significant, there is room to consider not raising the tax rate."

Discussions also began for the first time on the government’s proposed amendment to the Education Tax Act, which would raise the education tax rate imposed on financial and insurance businesses with annual revenue of 1 trillion won or more from the current 0.5% to 1%. However, the discussion was put on hold due to concerns about whether applying a progressive structure to the education tax, which is an indirect tax similar to value-added tax, would be consistent with the existing tax system. The government intends to conduct further research and submit detailed data on the issues raised for subsequent review.

Chairman Park explained, citing the example of whole life insurance, "If the education tax rate is raised to 1% without any limitation on the application period, insurance companies may face situations where cash liabilities are recognized as perpetual, making it difficult to meet the solvency margin (BIS) requirements. There were also suggestions to apply the increase for a three-year period and to repeat the application. We have requested the submission of all relevant data on these complex issues."

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