"Corporate Tax Relative to Korean GDP Hits Highest in 50 Years... 3rd in OECD"

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A survey revealed that the ratio of corporate tax revenue to South Korea's gross domestic product (GDP) in 2022 reached the 5% range, marking the highest level in the past 50 years.

On the 15th, the Korea Employers Federation (KEF) released a report titled "Current Status and Implications of Corporate Tax Burden in South Korea," which included this information. According to the report, South Korea's corporate tax burden rate in 2022 was recorded at 5.4%. The corporate tax burden rate, as defined by KEF, is the proportion of corporate tax revenue relative to the national GDP.

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South Korea's corporate tax burden rate dropped from 4.3% in 2019 to 3.4% in 2020, then surged over the next two years, surpassing 5% for the first time. This is the highest level since the Organisation for Economic Co-operation and Development (OECD) began providing South Korean statistics in 1972. Among 36 OECD countries (excluding Australia and Greece, which did not provide 2022 statistics), South Korea ranks third after Norway (18.8%) and Chile (5.7%). The OECD average in 2022 was 3.8%, and the average for the Group of Seven (G7) major countries was 3.1%. However, corporate tax revenue last year was estimated at 80.4 trillion won, a 22.4% decrease compared to 103.6 trillion won in 2022, suggesting that the corporate tax burden rate is expected to decline.

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The proportion of corporate tax burden relative to total tax revenue (national tax, local tax, and social security contributions) in 2022 was 16.8%, also the highest level since 1972. Among 35 OECD countries excluding Australia, Greece, and Japan, which did not provide data, South Korea ranks sixth. The OECD and G7 averages were 11.7% and 7.9%, respectively.

Regarding this, the report analyzed that South Korea's high nominal top corporate tax rate, actual burden level, and the increase in the number of corporate tax filers are likely contributing factors.

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First, the nominal corporate tax rate in 2022 was 27.5% (including local taxes), ranking 10th among OECD countries. This is 3.9 percentage points higher than the OECD average of 23.6%. In 2000, the rate was 30.8%, which was lower than the OECD average of 32.3%. However, last year, the standard top corporate tax rate was reduced to 26.4%, dropping South Korea to 11th place in the OECD rankings. Additionally, the number of corporate tax filers increased by 35.7% from 740,000 in 2018 to approximately 980,000 in 2022.

KEF views South Korea as bearing a relatively heavy corporate tax burden. Among the top three tax categories with the highest national tax revenue shares in 2022?income tax (32.5%), corporate tax (26.2%), and value-added tax (20.6%)?only the corporate tax burden ranks among the highest in the OECD.

According to KEF's survey referencing tax authorities of various countries, the proportion of wage income tax-exempt individuals in South Korea is 33.6%, higher than the United States at 32.7% (2020), Canada at 17.6% (2017), and Japan at 14.4% (2021). The value-added tax rate in 2022 averaged 19.2% across OECD countries, whereas South Korea has maintained a 10% rate since 1977.

Ha Sang-woo, head of KEF's Economic Research Department, emphasized, "In line with the trend of major countries increasing support to strengthen their domestic corporate competitiveness amid challenging economic conditions, South Korea must smoothly implement measures such as extending the temporary investment tax credit. It is also necessary to reduce the top corporate tax rate to at least the OECD average level."

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