[Tax in Focus] Tax Subcommittee Forms Smaller Group... Second Round of Contentious Bill Negotiations

Revisiting Unresolved Bills in the Subcommittee
Including Separate Taxation of Dividend Income and Corporate Tax

Following the Special Committee on Budget and Accounts, the Tax Subcommittee of the Planning and Finance Committee also convened a smaller subcommittee on the 27th, with only the chairperson, party secretaries, and a few select lawmakers in attendance. The purpose is to narrow the differences on contentious bills that have yet to reach bipartisan agreement in the subcommittee.

On the morning of the 27th, the Tax Subcommittee held this smaller subcommittee to seek agreement on issues such as the separate taxation of dividend income, corporate tax, and education tax, which failed to reach a tentative consensus during the first reading of tax bills. Only a minority of members from within the subcommittee, including Park Sooyoung of the People Power Party, who chairs the Tax Subcommittee, and Jung Taeho of the Democratic Party, the secretary of the Planning and Finance Committee, participated.

Although this is effectively the final negotiation stage within the subcommittee, the discussions involve trillions of won in potential tax revenue reductions, and the sharp divide between positions remains a significant variable. The ruling party seeks to align with the government’s expansionary fiscal policy and tax increases, while the opposition aims to reduce the tax burden and stimulate investment, leaving the gap unresolved.

After a recess on the morning of the 27th, Park Sooyoung told reporters, “On corporate tax, education tax, and the separate taxation of dividend income, the two parties remain on parallel tracks. I think we may have to consult the floor leaders of each party to determine the party’s official stance.”

For the separate taxation of dividend income, the issue of the top tax rate has resurfaced. On November 24, the subcommittee had effectively reached a tentative agreement to lower the top rate from 35% to 25%. However, some ruling party lawmakers reversed their stance, opposing the rate cut on the grounds of tax cuts for the wealthy and concerns over reduced tax revenue. There have also been suggestions to set the rate at 30% for major shareholders and 25% for general shareholders.

According to the Planning and Finance Committee, if the top rate for separate taxation of dividend income is set at 35%, annual tax revenue would decrease by 200 billion won compared to applying the comprehensive financial income tax (top rate 45%). If set at 25%, the annual revenue loss would be about 460 billion won.

Regarding the corporate tax, if the government’s proposal to uniformly raise all four tax brackets by 1 percentage point is adopted, it is expected to increase tax revenue by 18.482 trillion won over five years from 2026 (according to the National Assembly Budget Office) or 17.4424 trillion won (according to the government’s estimate). However, there are also concerns about the impact on small and micro-enterprises in the lower brackets.

Lawmakers are divided between raising all brackets and raising only the top two brackets (those exceeding 20 billion won) by 1 percentage point, as proposed by Assemblyman Ahn Dogeol. According to Ahn’s proposal, the increase in tax revenue would be limited to 10.5623 trillion won, resulting in a shortfall of about 7 to 8 trillion won compared to the government’s plan.

For the education tax paid by financial and insurance businesses, which is currently 0.5% of profits, the government has proposed maintaining the 0.5% rate for profits up to 1 trillion won and raising it to 1% (an increase of 0.5 percentage points) for profits exceeding 1 trillion won. However, lawmakers are questioning the fairness of this compared to other taxes.

Meanwhile, on the afternoon of the 27th, the Tax Subcommittee will discuss amendments to the inheritance and gift tax, which have been proposed only by lawmakers and not by the government.

On the 26th, the Tax Subcommittee of the Planning and Finance Committee is being held at the National Assembly in Yeouido, Seoul. 2025.11.26 Photo by Kim Hyunmin

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