Government Considers Two-Track Approach: Direct Compensation for Small Business Sales Losses + Tax Benefits

Hong Nam-ki Deputy Prime Minister "Reviewing Ways to Reduce Rent Burden for Small Business Owners"
Experts "Need Focused Support for Affected Groups, Not Universal Aid"

[Sejong=Asia Economy Reporter Kim Hyunjung] To alleviate the damages suffered by small business owners due to the COVID-19 pandemic, the government is considering 'direct cash support' linked to sales. Previously, cash support was provided uniformly by industry, but this relief measure is expected to become more realistic by taking into account the extent of sales damage. The government is also examining 'tax benefits' related to rent reductions, raising the likelihood of concentrating policy and fiscal resources on small business owners, who are key pillars of consumption and employment, to achieve a strong rebound in private consumption.

According to government and National Assembly officials on the 18th, the Ministry of Economy and Finance is currently reviewing a 'two-track' plan that provides direct cash payments linked to the scale of damage to small business owners whose sales have been hit by the COVID-19 situation, and simultaneously offers tax benefits to landlords when rent reductions are applied. This can also be seen in materials recently submitted by the Ministry of Economy and Finance to the National Assembly. The ministry compiled support measures for small business owners from advanced foreign countries that implemented economic lockdowns earlier than South Korea and reported them to the ruling party. As the number of confirmed COVID-19 cases exceeded 1,000 and the implementation of 'social distancing level 3' was raised, increasing the possibility of business closures, the government began referring to cases from other countries.

The cases cited by the Ministry of Economy and Finance in its report involve direct cash support methods. According to the submitted materials, the UK has been providing up to ?3,000 (approximately 4.45 million KRW) per month since last month to about 600,000 small businesses and food service establishments in lockdown areas, and retroactively paying up to ?2,100 to businesses in indirectly affected areas. Japan, extending its COVID-19 state of emergency, provides differentiated payments to reduce rent burdens: up to 6 million yen (approximately 63.65 million KRW) for corporations and up to 3 million yen for sole proprietors. France combines cash and tax support; during the first lockdown, it paid up to €1,500 (approximately 2.01 million KRW) per month to hotels and restaurants that either suspended operations or experienced a sales drop of 70% or more. During the second lockdown, it supported sales losses up to €10,000 per month for industries with a sales decrease of 50% or more. At the same time, landlords who waived rent receive a 50% tax credit on the corresponding amount. Germany also provided up to €15,000 per month for three months during the first full lockdown and paid up to 75% of the sales decrease (compared to the previous year) in cash for two months during the second lockdown.

The government also believes that supporting small business owners is essential to achieve a 3.2% economic growth rate next year. Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, said at a joint briefing on the '2021 Economic Policy Direction' with related ministries the day before, "We will include various measures to somehow reduce the rent burden on small business owners in the damage relief plan and review them together." He particularly indicated direct support measures, saying, "Cash support is not limited to rent but can be used for various other public charges or operating funds. We understand that the burden on businesses restricted by gathering bans is significant as the number of confirmed cases surges." Along with this, the government also announced plans to extend the application period for a 50% tax credit on income and corporate taxes for rent reductions until the end of June next year.

Experts also advise that the government should focus more intensive support on the groups that have suffered actual damage. Professor Kim Taegi of Dankook University's Department of Economics said, "Excluding universal basic income and universal disaster relief payments entirely, compensation for damages should be strengthened for small business owners and self-employed people who have been directly hit," adding, "Realistic compensation and consolation should be provided at the damage sites through cooperation with local governments."