The South Korean government under liberal President Moon Jae-in in its first tax code revision proposed to increase levies on super-rich individuals and companies - mostly chaebols - to help finance its increased social welfare programs.
At the same time, tax incentives will be provided to employers complying with the new government’s economic slogan of bolstering hiring and income and improving working terms for employees.
The tax code revision is designed to increase levies on the top-income bracket and lower burden on the working class and low-income earners to ease inequalities in wealth, improve redistribution and promote “sustainable growth” for the entire population, the Ministry of Strategy and Finance said in a statement.
Under the outline announced on Wednesday requiring approval from the cabinet late August and review by the National Assembly on Sept. 1, income tax rate on the two highest income-brackets would rise each by 2 percentage points to 40 percent for those earning from 300 million won ($267,499) to 500 million won a year and 42 percent for those earning beyond 500 million won.
A new top bracket would be added on the corporate category with a maximum rate of 25 percent on companies registering a profit of more than 200 billion won a year. The current highest corporate tax rate of 22 percent would stay unchanged for companies earning from 20 billion won to 200 billion won. From 2016 financial statements, 129 companies would come under the increased tax rate.
In other levies specifically targeting owner families of chaebol entities, anyone profiting more than 300 million won in stockholding a year would have to pay an income tax of 25 percent, up from current maximum rate of 20 percent.
Deductions for reported inheritance tax will come down incrementally from current 7 percent to 5 percent in 2018 and 3 percent in 2019.
Punitive tax would be levied on companies whose internal trade with family enterprises exceeds 20 percent and value of 100 billion won, stricter than the current 30 percent threshold.
Tax deductions on quarterly research and development (R&D) by large companies will come down to zero to 2 percent from current 1 to 3 percent. The total deduction of up to 30 percent in annual R&D spending will stay unchanged.
Deductions on capital investment for facility upgrades to improve productivity, safety, and environmental impact will also be lowered by 2 percentage points for large and mid-sized companies.
Coal-fueled power consumption tax will be raised by 6 won per kilogram to promote power generation of cleaner LNG fuel in line with the government’s policy of phasing out of fossil and nuclear fuel.
The government expects the tax increases would bring in extra revenue of 5.5 trillion won a year. Tax revenue last year reached 318 trillion won.
The government earlier last month in announcing 100-point state agenda estimated that it would need about 178 trillion won to finance its new programs over the next five years.
To help ease inequalities and hiring, tax incentives will go to companies increasing hiring. The benefits will also go to foreign companies, firms maintaining the existing workforce after business acquisitions, and adding jobs in starting new ventures.
Deductions will be offered to small- and mid-sized companies paying employees the minimum wage as the hourly salary floor goes up by 16.4 percent next year.
Employers will receive tax incentives when they convert irregular workers to permanent status and share their profits with smaller partner companies.
By Cho Si-young
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]