Ruling and Opposition Parties Agree on COVID-19 Tax Law...Tax Relief for SMEs in Special Disaster Areas

VAT Reduction for Small Individual Businesses with Annual Sales Under 88 Million Won
VAT Exemption for Simplified Taxpayers with Annual Sales Under 48 Million Won

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hye-min] On the 17th, the ruling and opposition parties agreed to pass an amendment to the Restriction of Special Taxation Act (Joteukbeop) aimed at minimizing economic damage caused by the spread of the novel coronavirus infection (COVID-19) by providing tax reductions for small-scale self-employed individuals and small and medium-sized enterprises (SMEs) located in special disaster areas.

Kim Jung-woo of the Democratic Party, Chu Kyung-ho of the United Future Party, and Yoo Sung-yeop of the Democratic Integrated Lawmakers' Group, all members of the National Assembly's Planning and Finance Committee, held a press conference at the National Assembly Press Hall to announce this agreement.

The ruling and opposition parties decided to base the amendment on the tax reduction measures included in the comprehensive livelihood and economic measures announced earlier by the government, specifically the amendment proposed by Representative Kim Jung-woo, and to add some additional tax reduction provisions.

A new provision was introduced to reduce income tax and corporate tax for one year in 2020 at twice the maximum SME special tax reduction rate (15-30%) for SMEs located in the special disaster areas designated by the ruling and opposition parties, including Daegu and Gyeongsangbuk-do's Gyeongsan, Bonghwa, and Cheongdo. A 60% reduction rate applies to small enterprises, and a 30% reduction rate applies to medium enterprises. This applies to all industries except entertainment bars and real estate rental businesses.

Representative Chu estimated, "A total of 130,000 people will benefit from tax reductions amounting to 340 billion KRW."

Small-scale self-employed individuals will have their value-added tax (VAT) payment reduced to the level of simplified taxpayers. The ruling and opposition parties expanded the criteria for small-scale individual business operators eligible for this from the government's original proposal of "annual sales of 66 million KRW or less" to "annual sales of 88 million KRW or less." The application period for the reduction was adjusted from two years to one year. Accordingly, it is estimated that 1.16 million individual business operators will benefit from tax reductions totaling 710 billion KRW.

For simplified taxpayers with annual sales under 48 million KRW, VAT payment will be temporarily exempted for this year. The ruling and opposition parties raised the exemption threshold from the previous annual sales of 30 million KRW to 48 million KRW. This is expected to benefit 170,000 people with a tax reduction effect of 20 billion KRW.

Additionally, the ruling and opposition parties agreed to expand the deduction rate for credit card and debit card usage amounts to 30-80%, reduce the individual consumption tax on passenger car purchases by 70%, provide a 50% tax credit on rent reductions by benevolent landlords, raise the limit on corporate entertainment expense remittance inclusion, and support the return of overseas companies to Korea as per the existing government plan.

The Planning and Finance Committee plans to convene the Tax Subcommittee and the full committee consecutively in the afternoon to process these measures. Representative Chu emphasized, "This is to support small business owners, self-employed individuals, and SMEs who are struggling due to COVID-19 and external economic conditions from a tax perspective. We have identified urgent matters to alleviate immediate tax burdens and reached an agreement between the ruling and opposition parties. We will continue to discuss additional measures depending on the economic situation going forward."