Education Tax Doubled After All... Secondary Financial Sector Faces Increased Tax Burden Amid Sluggish Core Business

Budget Bill Raising Education Tax to 1% Passed in National Assembly on December 2
Insurance Companies Expected to Pay 700 Billion Won and Card Companies 300 Billion Won in Education Tax by 2027
Consumer Benefits May Decline Due to Higher Premiums an

The government's plan to double the education tax has finally become a reality. In the secondary financial sector-including insurance companies, credit card companies, and savings banks-tax burdens will now increase on top of worsening core business performance and the pressure of inclusive finance initiatives.

According to political sources on December 3, the National Assembly passed the 2026 budget bill and its associated legislative amendments in a plenary session the previous day. Among the accompanying bills is an amendment to the Education Tax Act, which raises the education tax rate for financial institutions with operating revenue of over 1 trillion won from the current 0.5% to 1%. The education tax is a special-purpose tax levied to expand educational facilities and improve the treatment of teachers. Since financial institutions such as banks and insurance companies are exempt from value-added tax, the government has imposed the education tax to supplement tax revenues.

The secondary financial sector has consistently opposed the increase in the education tax. This is because, with core business performance declining, a higher education tax burden could further weaken financial soundness and reduce consumer benefits.

In the insurance industry, the five major non-life insurance companies (Samsung Fire & Marine, DB Insurance, Hyundai Marine & Fire, Meritz Fire & Marine, and KB Insurance) paid a combined education tax of about 200 billion won in 2023. The six major life insurers (Samsung Life, Hanwha Life, Kyobo Life, Shinhan Life, NH NongHyup Life, and Mirae Asset Life) paid approximately 150 billion won. Assuming operating revenue remains constant, a simple calculation suggests that by 2027, these insurers will be liable for about 700 billion won in education tax. Both the General Insurance Association of Korea and the Korea Life Insurance Association submitted formal objections to the Ministry of Economy and Finance when the education tax reform plan was announced last July, but their arguments were ultimately not accepted.

An increased education tax burden on insurers will also negatively impact the risk-based capital ratio (K-ICS). Under the International Financial Reporting Standards (IFRS17), anticipated tax payments are treated as future cash outflows and thus recorded as liabilities. This reduces capital and ultimately lowers the K-ICS ratio. An insurance industry official stated, "With worsening loss ratios, increased tax burdens, and strengthened capital regulations, the financial burden is mounting. Insurers will ultimately have no choice but to respond by raising insurance premiums."

The credit card sector faces similar challenges. The eight major standalone credit card companies (Samsung, Shinhan, KB Kookmin, Hyundai, Lotte, Woori, Hana, and BC Card) pay a combined education tax of about 140 billion won. The Credit Finance Association also submitted a letter of opposition when the education tax increase was announced. The association argued that it would be difficult to bear additional burdens at a time when core business profitability is declining due to lower merchant fees and as existential threats such as stablecoins grow. The association even proposed alternatives, such as changing the tax base from "revenue" to "profit and loss" and subdividing the tax brackets, but these suggestions were not adopted. Since the new government is focused on expanding productive and inclusive finance, such claims were not accepted. During last-minute budget negotiations, the People Power Party proposed a compromise to implement the education tax increase for five years on a trial basis, but failed to reach an agreement with the ruling Democratic Party of Korea.

The savings bank sector is concerned that the education tax increase could undermine financial support for low-income households. The industry had proposed excluding revenue from inclusive finance loans-such as Sunshine Loans, Saitdol Loans, and mid-interest loans-from the education tax base, but this was not reflected in the final plan. Among savings banks, only OK Savings Bank and SBI Savings Bank have operating revenue exceeding 1 trillion won.

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